TIDMSNR
RNS Number : 0835O
Senior PLC
02 March 2009
Senior plc
Results for the year ended 31 December 2008
Senior delivers a 48% increase in adjusted profit before tax
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| FINANCIAL HIGHLIGHTS | | Year ended 31 December | | | |
+-------------------------------------------+--+---------------------------+--+-------+-----+
| | | 2008 | | 2007 | | | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| REVENUE | | GBP562.4m | | GBP470.7m | | +19% | (3) |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| OPERATING PROFIT | | GBP59.8m | | GBP41.5m | | +44% | (3) |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| ADJUSTED OPERATING PROFIT (1) | | GBP64.5m | | GBP45.0m | | +43% | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| ADJUSTED OPERATING MARGIN (1) | | 11.5% | | 9.6% | | | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| PROFIT BEFORE TAX | | GBP51.3m | | GBP34.3m | | +50% | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| ADJUSTED PROFIT BEFORE TAX (1) | | GBP56.0m | | GBP37.8m | | +48% | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| BASIC EARNINGS PER SHARE | | 9.92p | | 7.17p | | +38% | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| ADJUSTED EARNINGS PER SHARE (1) | | 10.63p | | 7.71p | | +38% | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| TOTAL DIVIDENDS (PAID AND PROPOSED) PER | | 2.60p | | 2.40p | | +8% | |
| SHARE | | | | | | | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| FREE CASH FLOW (2) | | GBP52.4m | | GBP18.5m | | +183% | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
| NET BORROWINGS | | GBP174.5m | | GBP94.8m | | | |
+-------------------------------------------+--+-----------+---+-----------+--+-------+-----+
+-----+----------------------------------------------------------------------------+
| (1) | Adjusted figures are stated before loss on disposal of fixed assets of |
| | GBPnil (2007 - GBP0.7m), a GBP4.7m charge for amortisation of intangible |
| | assets acquired on acquisitions (2007 - GBP3.3m) and the release of a |
| | provision set up on a previous acquisition of GBPnil (2007 - GBP0.5m). |
| | Adjusted earnings per share takes account of the tax impact of these |
| | items. |
+-----+----------------------------------------------------------------------------+
| (2) | See Note 11(b) for derivation of free cash flow. |
+-----+----------------------------------------------------------------------------+
| (3) | Excluding the effects of acquisitions and foreign exchange movements, |
| | underlying revenue increased by 5% and operating profit by 26%. |
+-----+----------------------------------------------------------------------------+
| (4) | The Group's principal exchange rates, for the US dollar and the Euro, |
| | applied in the translation of revenue, profit and cash flow items at |
| | average rates were $1.85 (2007 - $2.00) and EUR1.26 (2007 - EUR1.46), |
| | respectively. The US dollar and Euro rates applied to the balance sheet at |
| | 31 December 2008 were $1.44 (2007 - $1.99) and EUR1.03 (2007 - EUR1.36), |
| | respectively. |
+-----+----------------------------------------------------------------------------+
Commenting on the results, Martin Clark, Chairman of Senior plc, said:
"The Group has delivered an excellent set of results for 2008, with adjusted
profit before tax 48% ahead of the prior year and free cash flow nearly three
times the level achieved in 2007, due to strong performances from both the
Aerospace and Flexonics Divisions.
Senior has no material re-financing need until 2012, is strongly cash generative
and is operating comfortably within its bank covenants. Whilst the Group's end
markets are expected to be challenging, for the foreseeable future, this
financial position combined with the decisive actions taken by management to
reduce the Group's cost base and the content it has on future growth programmes,
such as Boeing's 787 and Lockheed's Joint Strike Fighter aircraft, gives the
Board confidence in the long-term future prospects for the Group. 2009 has
started satisfactorily, with adjusted profit before tax of GBP4.7m in January
and the level of net debt reducing by GBP3.4m during the month."
For further information please contact:
+--------------------------------------------------+---------+----------------+
| Mark Rollins, Group Chief Executive, Senior plc | | 01923 714738 |
+--------------------------------------------------+---------+----------------+
| Simon Nicholls, Group Finance Director, Senior | | 01923 714722 |
| plc | | |
+--------------------------------------------------+---------+----------------+
| Clare Strange, Finsbury Group | | 020 7251 3801 |
+--------------------------------------------------+---------+----------------+
This Release represents the Company's dissemination announcement in accordance
with the requirements of Rule 6.3.5 of the Disclosure and Transparency Rules of
the United Kingdom's Financial Services Authority. The full Annual Report
& Accounts 2008, together with other information on Senior plc, may be found at:
www.seniorplc.com
The information contained in this Release is an extract from the Annual Report
& Accounts 2008, however, some references to Note and page numbers have been
amended to reflect Note and page numbers appropriate to this Release.
The Directors' Responsibility Statement has been prepared in connection with the
full Financial Statements, Operating and Financial Review and Directors' Report
as included in the Annual Report & Accounts 2008. Therefore, certain Notes and
parts of the Directors' Report reported on are not included within this Release.
Note to Editors:
Senior is an international manufacturing Group with operations in 11 countries.
It is listed on the main market of the London Stock Exchange (symbol SNR).
Senior designs, manufactures and markets high technology components and systems
for the principal original equipment producers in the worldwide aerospace,
defence, land vehicle and energy markets.
Cautionary Statement
This Release contains certain forward-looking statements. Such statements are
made by the Directors in good faith based on the information available to them
at the time of the Release and they should be treated with caution due to the
inherent uncertainties underlying any such forward-looking information.
Results for the year ended 31 December 2008
CHAIRMAN'S STATEMENT
The Group has delivered an excellent set of results for 2008, with adjusted
profit before tax 48% ahead of the prior year and free cash flow nearly three
times the level achieved in 2007. This strong foundation, combined with the
successful long-term refinancing of the Group undertaken during 2008, means
Senior is well placed to deal with the uncertainty being seen in markets across
the world today.
Financial Results
2008 saw the Group achieve record levels of operating profit and cash generation
from operations.
Group revenue increased by 19% to GBP562.4m (2007 - GBP470.7m) and, with margins
improving strongly, operating profit increased by 44% to GBP59.8m (2007 -
GBP41.5m). Capo Industries, acquired in January 2008, and Absolute
Manufacturing, acquired in December 2007, both made positive contributions in
their first year within the Group. Excluding the beneficial effects of
acquisitions and foreign exchange movements, revenue grew by 5% and operating
profit by 26%, with the industrial and aerospace businesses the key
contributors, along with a much improved performance from the heavy duty diesel
products in North America.
Adjusted profit before tax (as defined in the Financial Highlights table above),
the measure which the Board believes best represents the true underlying
performance of the business, increased by 48% to GBP56.0m (2007 - GBP37.8m).
Adjusted earnings per share increased by 38% to 10.63 pence (2007 - 7.71
pence).
Operating profit and adjusted profit before tax are stated after GBP1.9m of
costs associated with reducing the Group's headcount by 480 people (8% of total
Group employees) in the final quarter of the year, of which 35 were UK-based
employees. Savings of GBP7.0m are anticipated in 2009 as a result of this
reduction in employee numbers. The reductions arose mainly in those businesses
providing parts for the land vehicle markets.
In the current global economic climate, cash generation is very important to the
future well-being of every business and, therefore, the GBP52.4m (2007 -
GBP18.5m) of free cash flow for the year was particularly pleasing, driven by
the increase in profitability and strong inflows from working capital.
This clearly demonstrates the strongly cash generative nature of the Group.
Financing
The Group's year-end net debt stood at GBP174.5m (2007 - GBP94.8m), as the
strong operational cash flows were offset by GBP79.5m in adverse foreign
exchange movements and the acquisition, in January 2008, of Capo Industries for
GBP44.1m. At the end of December 2008, the Group had committed facilities of
GBP224.5m, so providing GBP50.0m of headroom, and is operating comfortably
within its banking covenants.
In early October 2008, the Group issued $120m of new loan notes through a
private placement offer. The notes mature after 7, 10 and 12 years. This
significant, and timely, refinancing means that no material funds are now due
for repayment before July 2012.
Dividend
The Board is recommending an unchanged final dividend of 1.70 pence per share
(2007 - 1.70 pence), bringing the total dividend for the year to 2.60 pence, an
increase of 8% over the 2.40 pence for 2007. The size of the increase reflects
the fact that the Group is strongly cash generative and is financed for the long
term whilst, at the same time, acknowledging the uncertainty underlying many of
the Group's markets.At the level recommended, the full year dividend would be
covered 4.1 times (2007 - 3.2 times) by adjusted underlying earnings per share.
The final dividend, if approved, will be paid on 29 May 2009 to shareholders on
the register at close of business on 1 May 2009.
Operations
Senior reports as two Divisions - Aerospace, consisting of 14 operating entities
and representing 56% of Group revenue, and Flexonics, consisting of 11
operations and representing 44% of Group revenue. The Aerospace Division was
split into two sub-sectors, Aerostructures and Fluid Systems, during 2008 in
order to enhance management oversight, improve market presence and aid best
practice sharing. All of Senior's operations are focused on manufacturing
components and systems for original equipment manufacturers. The Group's
products are typically single sourced, highly engineered and difficult to
manufacture.
Aerospace
Production of civil aircraft (63% of divisional sales) was generally strong
throughout 2008. In the commercial large aircraft sector (38% of divisional
sales), Boeing and Airbus reported combined net order intake of 1,439 aircraft,
well ahead of aircraft deliveries (858 aircraft; 2007 - 894) such that their
combined order book grew by 8% during the year to 7,429 aircraft (2007 - 6,848
aircraft). Boeing, the Group's largest customer, suffered a two month strike in
the second half of the year which reduced its aircraft deliveries by around 70
aircraft in 2008. The combined order book of Boeing and Airbus now represents
eight times current annual deliveries. This is a healthy backlog going into
2009 when deliveries are expected to show a modest increase over 2008, as Boeing
recovers from its strike, but net order intake is expected to be lower than the
rate of aircraft deliveries for the first time since 2004.
Following substantial delays, Boeing is finally expected to launch its 787
aircraft during 2009. This platform is a significant opportunity for the Group,
as it is expected to represent Senior's largest ever ship-set value (between
GBP420k and GBP775k per aircraft, dependent upon the chosen engine). Boeing has
around 880 orders for the aircraft and anticipates ramping up production to at
least 120 aircraft per year. The aircraft is currently scheduled to fly for the
first time during the second quarter of 2009, and to be delivered to customers
starting in the first quarter of 2010. Senior has already installed most of the
production capacity required to meet this increased demand.
Deliveries of regional and business jets, whose markets represented 25% of
divisional sales, were good during 2008. The combined regional jet deliveries
of the two largest manufacturers, Bombardier and Embraer, increased by 9% to 280
aircraft (2007 - 258) and business jet deliveries increased by 16% to 1,315
aircraft (2007 - 1,138). The military and defence sectors (23% of divisional
sales) were strong throughout the year, with significantly higher content being
won on the growing C130 military transporter programme.
Capo Industries, acquired in January 2008, and Absolute Manufacturing, acquired
in December 2007, both contributed positively in their first year with the
Group, achieving combined sales of GBP26.8m and adjusted operating profit of
GBP3.3m, a 12.3% operating margin.
Healthy markets, improved operational efficiencies, acquisitions, new programme
wins and beneficial currency movements, resulted in a 27% increase in the
Aerospace Division's sales to GBP312.9m (2007 - GBP246.2m) and an increase in
adjusted operating profit of 33% to GBP44.3m (2007- GBP33.4m). The divisional
operating margin increased for the fifth consecutive year to 14.1% (2007 -
13.6%).
Flexonics
Land vehicle markets accounted for 53% of divisional sales in 2008 with the
remaining 47% of sales being made to industrial markets such as the
petrochemical, power generation, heating and ventilation, and medical markets.
After a satisfactory first half of 2008, all land vehicle markets fell steeply
at various times during the second half of the year. In North America, sales of
light vehicles were 13.2 million units in 2008 (2007 - 16.1 million), with the
annualised sales run rate in the fourth quarter being only 10.3 million units.
Sales of medium and heavy duty trucks in North America fell by 20% to 298
thousand units (2007 - 371 thousand). In Europe, sales of light vehicles fell
to 15.0 million units (2007 - 16.3 million) as volumes declined markedly in the
final quarter of the year.
Senior's industrial markets remained strong throughout 2008 and the operations
most exposed to these markets performed excellently. Senior Flexonics Pathway,
the Group's largest industrial operation, delivered record results in 2008 on
the back of strong petrochemical and power generation markets. Elsewhere,
Senior's industrial businesses moved ahead strongly, benefiting from new
programmes, increased volumes of products for the solar power generation market,
and securing a GBP16m contract for the nuclear industry for delivery in 2010 and
2011.
As a result of falling demand for land vehicles, swift action was taken and
costs reduced at every operation having exposure to these markets, with 16% of
the workforce of these operations (380 employees) leaving the Group in the
fourth quarter of 2008. Other actions such as reduced working weeks, overtime
bans and wage restrictions were also implemented. Headcount has remained
relatively stable in the industrial operations as these end markets generally
continue at satisfactory levels.
Strong industrial markets, the decisive action taken to reduce the cost base in
the land vehicle businesses, a significant operational improvement in the
production of heavy duty diesel products in North America and currency benefits,
resulted in sales for the Flexonics Division increasing by 11% to GBP250.1m
(2007 - GBP225.0m) and adjusted operating profit improving by 49% to GBP25.9m
(2007 - GBP17.4m). As a result, the Division's operating margin was 10.4%, 2.7
percentage points higher than the 7.7% reported for 2007 and at its highest
level since 2000. Given the marked slowdown across the world in the Group's
land vehicle markets, the Division's financial performance for the year was
particularly pleasing and is reflective of the quality of the businesses and the
prompt action taken by the Group.
Employees and the Board
The Group's employees worked exceptionally hard throughout 2008 and I would like
to thank them for the significant contribution they each made to the year's
excellent performance. Despite the global uncertainty, it is encouraging to
witness, as I visit Senior's operations, the generally high level of morale and
commitment exhibited by Senior's workforce. Such an attitude bodes well for the
future success of the Group. It was, therefore, with reluctance that headcount
levels were reduced towards the end of the year at a number of operations.
However, with the sudden and steep fall in some global markets, particularly
for land vehicles, such action was necessary to maintain a healthy business for
the future.
As previously announced, Mark Rollins took over as Group Chief Executive from
Graham Menzies during March 2008, having been Group Finance Director for the
previous eight years. The transition has been smooth, with Mark's detailed
knowledge of the Group proving advantageous in the current climate. Simon
Nicholls was appointed as the Group Finance Director on 1 May 2008, joining
Senior from Hanson plc, where he had worked for nine years, latterly as Group
Financial Controller and the Chief Financial Officer for Hanson's North American
operations. Simon has made a strong start with the Group.
Aerospace markets now account for the majority of the Group's revenue and,
cognisant of this fact, the Board added expertise in this area with the
appointment of Michael Steel as a non-executive Director on 1 May 2008. Michael
had previously worked in an executive capacity for GE Aviation Systems (formerly
Smiths Aerospace) for 17 years, and his knowledge and experience of the industry
are proving to be beneficial to Senior.
Outlook
The combined order book of Boeing and Airbus represents eight times current
annual deliveries. Within this, Airbus has recently announced a modest 6%
reduction in build rates of their narrow-bodied aircraft from October 2009, so
providing good visibility for the year, whilst Boeing's current forecast is to
continue at existing production rates throughout 2009. Boeing's 787 aircraft is
expected to ramp up production starting in 2010, providing significant revenue
for Senior and partial mitigation for any further decline in the build rates of
existing aircraft. The near-term outlook for the regional and business jet
manufacturers has weakened significantly, with many manufacturers seeing
large reductions in demand whilst only a few, typically those making the larger
business jets, are maintaining production levels for the time being. The
military and defence market remains strong and, in the medium term, this market
is expected to become increasingly important to Senior, as production rates of
the C130 military transporter increase, the Joint Strike Fighter moves from
testing and development to full production and the A400M goes into service.
Senior's industrial markets, the largest being power and energy, remain
generally healthy and the Group's industrial businesses had strong order books
going into 2009. Much of the power generation business is driven by tightening
emission requirements for coal-fired generating units and this business looks
strong for the foreseeable future. However, demand in the land vehicle markets
remains very weak, with the Group's customers typically seeing sales of finished
vehicles down 30% to 40% on a year ago. No immediate recovery is anticipated
and volumes are expected to remain near to current levels for the foreseeable
future. The continuing significant reduction in vehicle sales across the globe
is now causing severe financial hardship to automotive vehicle manufacturers,
with the Governments of many countries stepping in to provide financial support
to the industry during the current economic crisis.
As a result of the continuing poor land vehicle markets and also the weakness
being seen in some of the regional and business jet markets, the Group is
reducing headcount by a further 500 people during the first four months of 2009,
of which 95 are expected to be UK-based employees. This headcount reduction is
expected to cost around GBP0.8m and be spread evenly between the Aerospace and
Flexonics Divisions. 220 people left the Group in January as part of this
programme. When combined with the reduction undertaken in the final quarter of
2008, nearly 1,000 employees (17% of the workforce) will have left the Group by
the end of April 2009, a cost reduction of GBP19m for 2009.
Senior has no material refinancing need until 2012, is strongly cash generative
and is operating comfortably within its bank covenants. Whilst the Group's end
markets are expected to be challenging, for the foreseeable future, this
financial position combined with the decisive actions taken by management to
reduce the Group's cost base and the content it has on future growth programmes,
such as Boeing's 787 and Lockheed's Joint Strike Fighter aircraft, gives the
Board confidence in the long-term future prospects for the Group. 2009 has
started satisfactorily, with adjusted profit before tax of GBP4.7m in January
and the level of net debt reducing by GBP3.4m during the month.
Martin Clark
Chairman
OPERATING AND FINANCIAL REVIEW
To the members of Senior plc
This Operating and Financial Review ("OFR") has been prepared solely to provide
additional information to enable shareholders to assess the Company's strategies
and the potential for those strategies to be fulfilled. The OFR should not be
relied upon by any other party for any other purpose.
The OFR contains certain forward-looking statements. Such statements are made by
the Directors in good faith based on the information available to them at the
time of their approval of this report and they should be treated with caution
due to the inherent uncertainties underlying any such forward-looking
information.
In preparing this OFR, the Directors have sought to comply with the guidance set
out in the Accounting Standards Board's Reporting Statement: "Operating and
Financial Review".
This OFR has been prepared for the Group as a whole and therefore gives greatest
emphasis to those matters that are significant to Senior plc and its subsidiary
undertakings when viewed as a whole. The OFR is organised under the following
headings:
+-----+--------------------------------------------------------------------------+
| ? | Operations |
+-----+--------------------------------------------------------------------------+
| ? | Long-term Strategy, Business Objectives and Key Performance Indicators |
+-----+--------------------------------------------------------------------------+
| ? | Acquisitions |
+-----+--------------------------------------------------------------------------+
| ? | Financial Review |
+-----+--------------------------------------------------------------------------+
| ? | Divisional Review |
+-----+--------------------------------------------------------------------------+
| ? | Outlook |
+-----+--------------------------------------------------------------------------+
| ? | Risks and Uncertainties |
+-----+--------------------------------------------------------------------------+
| ? | Resources |
+-----+--------------------------------------------------------------------------+
| ? | Corporate Responsibility |
+-----+--------------------------------------------------------------------------+
Operations
Senior is an international manufacturing Group with operations in 11 countries.
Senior designs, manufactures and markets high technology components and systems
for the principal original equipment producers in the worldwide aerospace,
defence, land vehicle and energy markets. The Group is split into two
Divisions, Aerospace and Flexonics.
Aerospace
The Aerospace Division consists of 14 operations. These are located in the USA
(nine), the United Kingdom (two), and continental Europe (three). In 2008, this
Division accounted for 56% of total Group revenue. Its main products were engine
structures and mounting systems (29% of divisional sales), metallic ducting
systems (18%), airframe and other structural parts (18%), composite ducting
systems (8%), helicopter machined parts (7%) and fluid control systems (6%).
14% of divisional sales were to non-aerospace, but related technology, markets.
The Division's largest customers include Boeing, representing 12% of
2008 divisional sales, United Technologies (11% of divisional sales), GE,
Airbus, Rolls-Royce, Goodrich and Bombardier.
Flexonics
The Flexonics Division has 11 operations. These are located in North America
(three), the United Kingdom (two), continental Europe (three), South Africa,
India and Brazil. In 2008, the Flexonics Division accounted for 44% of total
Group revenue. This Division's sales comprised flexible mechanisms for vehicle
exhaust systems (26% of divisional sales), cooling and emission control
components (14%) and diesel fuel distribution pipework (13%). Sales of
industrial components, principally expansion joints, control bellows and hoses
increased to 47% of divisional sales in 2008 (2007 - 42%). The components were
supplied to power and boiler markets (16% of divisional sales), HVAC and solar
markets (11% of divisional sales), oil and gas and chemical processing
industries (7% of divisional sales) and other industrial markets (13% of
divisional sales). The Division's largest end users are land vehicle customers,
including PSA, Cummins and Ford, each representing 9% of divisional sales, and
General Motors (8% of divisional sales). The percentage of Divisional sales
coming from the automotive market fell to 37% (2007 - 47%) with sales to the
heavy duty diesel engine market (e.g. Cummins, Caterpillar and Siemens) growing
to 16% of divisional sales (2007 - 11%).
Long-Term Strategy, Business Objectives and Key Performance Indicators
Senior is a manufacturer of products used principally in the aerospace, defence,
land vehicle and energy markets.
There are four key elements to Senior's strategy for accelerating growth and
creating shareholder value, which are:
+------+-----------------+
| ? | targeted |
| | investment |
| | in new |
| | product |
| | development |
| | and new |
| | geographies, |
| | for markets |
| | having |
| | higher than |
| | average |
| | growth |
| | potential; |
+------+-----------------+
| ? | exceeding |
| | customer |
| | expectation |
| | through |
| | advanced |
| | process |
| | engineering |
| | and |
| | excellent |
| | factory and |
| | logistics |
| | execution; |
+------+-----------------+
| ? | portfolio |
| | enhancement, |
| | through |
| | focused |
| | acquisitions |
| | and disposal |
| | of non-core |
| | assets: both |
| | subject to |
| | strict |
| | financial |
| | and |
| | commercial |
| | criteria, |
| | their |
| | long-term |
| | outlook and |
| | the Group's |
| | anticipated |
| | funding |
| | position; |
| | and |
+------+-----------------+
| ? | creating |
| | an |
| | entrepreneurial |
| | culture, with |
| | strong |
| | controls, |
| | whilst |
| | continuously |
| | striving for |
| | improvements |
| | amongst its |
| | operating |
| | businesses. |
+------+-----------------+
The Group implements and monitors its performance against this strategy by
having the following financial objectives:
+------+----------------------------------------------------------------------------+
| ? | to have organic sales growth in excess of the rate of inflation; |
+------+----------------------------------------------------------------------------+
| ? | to increase adjusted earnings per share on an annual basis by more than |
| | the rate of inflation; |
+------+----------------------------------------------------------------------------+
| ? | to increase the Group's return on revenue margin each year; |
+------+----------------------------------------------------------------------------+
| ? | to generate sufficient cash to enable the Group to fund future growth and |
| | to follow a progressive dividend policy; and |
+------+----------------------------------------------------------------------------+
| ? | to maintain an overall return on capital employed in excess of the Group's |
| | cost of capital and to target a pre-tax return in excess of 15%. |
+------+----------------------------------------------------------------------------+
These financial objectives are supported by two non-financial objectives which
are:
+------+-------------+
| ? | to |
| | reduce |
| | the |
| | Group's |
| | carbon |
| | dioxide |
| | emissions |
| | to |
| | revenue |
| | ratio by |
| | 15% from |
| | 113.7 |
| | tonnes in |
| | 2006 to |
| | below |
| | 96.6 |
| | tonnes by |
| | 2010; and |
+------+-------------+
| ? | to |
| | reduce |
| | the |
| | number |
| | of OSHA |
| | (or |
| | equivalent) |
| | recordable |
| | injury and |
| | illness |
| | cases |
| | involving |
| | days away |
| | from work |
| | by 5% per |
| | annum. |
+------+-------------+
In 2008 the Group made good progress against all of its strategic targets,
driven notably by a significant improvement in the underlying performance within
organic operations in both Divisions. This improvement was in turn attributable
to a combination of various new programme wins, increased operational
efficiencies and improved working capital management through the continued
implementation of the Group's Lean Manufacturing Programme. Further
improvements were also made in the level of carbon dioxide emissions and
recordable injuries.
A summary of the Key Performance Indicators ("KPI s") showing the Group's
progress in relation to its strategic objectives is set out in the table below:
+--------------------------------+-----------+----------+
| | 2008 | 2007 |
+--------------------------------+-----------+----------+
| Organic revenue growth (1) | +5% | +18% |
+--------------------------------+-----------+----------+
| Adjusted earnings per | 10.63p | 7.71p |
| share (2) | | |
+--------------------------------+-----------+----------+
| - growth | +38% | +66% |
+--------------------------------+-----------+----------+
| Return on revenue margin (3) | 11.5% | 9.6% |
+--------------------------------+-----------+----------+
| Return on capital employed (4) | 21.7% | 19.2% |
+--------------------------------+-----------+----------+
| CO2 emissions/GBPm revenue (5) | 104 | 110 |
| | tonnes | tonnes |
+--------------------------------+-----------+----------+
| Lost time injury frequency | 1.94 | 2.55 |
| rate (6) | | |
+--------------------------------+-----------+----------+
+-----+------------------------------------------------------------------------------+
| (1) | Organic revenue growth is the rate of growth in Group revenue, at constant |
| | exchange rates, excluding the effect of acquisitions and disposals. |
+-----+------------------------------------------------------------------------------+
| (2) | Adjusted earnings per share is the profit after taxation (adjusted for the |
| | profit or loss on disposal of fixed assets, amortisation of intangible |
| | assets arising on acquisitions and the release of a provision set up on a |
| | previous acquisition) divided by the average number of shares in issue in |
| | the period. |
+-----+------------------------------------------------------------------------------+
| (3) | Return on revenue margin is the Group's adjusted operating profit divided by |
| | its revenue. |
+-----+------------------------------------------------------------------------------+
| (4) | Return on capital employed is the Group's adjusted operating profit divided |
| | by the average of the capital employed at the start and end of the period. |
| | Capital employed is total assets less total liabilities, except for those of |
| | an interest bearing nature. |
+-----+------------------------------------------------------------------------------+
| (5) | CO2 emissions/GBPm revenue is an estimate of the Group's carbon dioxide |
| | emissions in tonnes divided by the Group's revenue in GBP millions. |
+-----+------------------------------------------------------------------------------+
| (6) | Lost time injury is the number of OSHA (or equivalent) recordable injury and |
| | illness cases involving days away from work per 100 employees. |
+-----+------------------------------------------------------------------------------+
The above table of Key Performance Indicators shows that the Group achieved all
of its financial targets in the year. It also remains on course to achieve its
targeted CO2 emissions reduction of 15% by 2010 (compared to 2006), and reduced
the level of recordable injuries by 25% in the year, comfortably in excess of
its annual target.
Acquisitions
The Group completed the acquisition of Capo Industries on 25 January 2008 for a
total consideration of GBP44.6m (including deferred consideration of GBP0.5m).
Located in Chino, California, Capo Industries specialises in the 5-axis
machining of titanium and steel alloys primarily for auxiliary power units on
large commercial aircraft and for propulsion engines on business jets. Capo
Industries is a complementary fit for the Group's Aerospace Structures
operations. Financial details relating to this acquisition are disclosed in Note
10.
Financial Review
Summary
A summary of the Group's operating results are set out in the table below.
Further detail on the performance of each Division is included in the section
entitled "Divisional Review".
+-----------------+--+-----------------------+--------+--+------------+--------+-----+---------------------+--------+--+
| | | Revenue | | Adjusted | (1) | Margin | |
| | | | | Operating | | | |
| | | | | Profit | | | |
+-----------------+--+--------------------------------+--+---------------------+-----+------------------------------+--+
| | | 2008 | 2007 | | 2008 | 2007 | | 2008 | 2007 | |
+-----------------+--+-----------------------+--------+--+------------+--------+-----+---------------------+--------+--+
| | | GBPm | GBPm | | GBPm | GBPm | | % | % | |
+-----------------+--+-----------------------+--------+--+------------+--------+-----+---------------------+--------+--+
| Aerospace | | 312.9 | 246.2 | | 44.3 | 33.4 | | 14.1 | 13.6 | |
+-----------------+--+-----------------------+--------+--+------------+--------+-----+---------------------+--------+--+
| Flexonics | | 250.1 | 225.0 | | 25.9 | 17.4 | | 10.4 | 7.7 | |
+-----------------+--+-----------------------+--------+--+------------+--------+-----+---------------------+--------+--+
| Inter-segment | | (0.6) | (0.5) | | - | - | | - | - | |
| sales | | | | | | | | | | |
+-----------------+--+-----------------------+--------+--+------------+--------+-----+---------------------+--------+--+
| Central costs | | - | - | | (5.7) | (5.8) | | - | - | |
+-----------------+--+-----------------------+--------+--+------------+--------+-----+---------------------+--------+--+
| Group Total | | 562.4 | 470.7 | | 64.5 | 45.0 | | 11.5 | 9.6 | |
+-----------------+--+-----------------------+--------+--+------------+--------+-----+---------------------+--------+--+
+-----+--------------------------------------------------------------------+
| (1) | Adjusted operating profit is the profit before interest and tax |
| | and before the loss on disposal of fixed assets, amortisation of |
| | intangible assets arising on acquisitions and the release of a |
| | provision set up on a previous acquisition. |
+-----+--------------------------------------------------------------------+
Adjusted operating profit may be reconciled to the operating profit shown in the
Consolidated Income Statement as follows:
+-----------------------------------------------+--+--------+--------+--+
| | | 2008 | 2007 | |
+-----------------------------------------------+--+--------+--------+--+
| | | GBPm | GBPm | |
+-----------------------------------------------+--+--------+--------+--+
| Operating profit per Financial Statements | | 59.8 | 41.5 | |
+-----------------------------------------------+--+--------+--------+--+
| Loss on sale of fixed assets | | - | 0.7 | |
+-----------------------------------------------+--+--------+--------+--+
| Release of provision set up on acquisition | | - | (0.5) | |
+-----------------------------------------------+--+--------+--------+--+
| Amortisation of acquisition intangible assets | | 4.7 | 3.3 | |
+-----------------------------------------------+--+--------+--------+--+
| Adjusted operating profit | | 64.5 | 45.0 | |
+-----------------------------------------------+--+--------+--------+--+
The Group benefited from particularly strong market demand in the first half of
the year in all product lines. However, demand weakened significantly in
automotive and truck markets in the final quarter and, in wide-bodied aerospace
markets, demand was adversely impacted as Boeing machinists were on strike for
two months. Demand conditions in other markets, including industrial components
and other aerospace markets, remained robust all year. As a result, Group
revenue increased by 19% in 2008 (10% excluding the impact of foreign exchange).
Adjusted operating profit increased significantly by 43% (33% excluding the
impact of foreign exchange) due to acquisitions and further encouraging
improvements in organic operations' profitability achieved in both Divisions.
Operating margins increased significantly to 11.5% (2007 - 9.6%).
The Group's free cash flow and net debt for 2008 and the prior year were:
+------------------------------------------------+---+--------+--------+--+
| | | 2008 | 2007 | |
+------------------------------------------------+---+--------+--------+--+
| | | GBPm | GBPm | |
+------------------------------------------------+---+--------+--------+--+
| Free cash flow | | 52.4 | 18.5 | |
+------------------------------------------------+---+--------+--------+--+
| Net debt | | 174.5 | 94.8 | |
+------------------------------------------------+---+--------+--------+--+
Free cash flow is the total net cash flow generated by the Group prior to
corporate activity such as acquisitions, disposals, financing and transactions
with shareholders. It may be derived from the figures contained in the
Financial Statements as follows:
+------------------------------------------------+---+--------+--------+--+
| | | 2008 | 2007 | |
+------------------------------------------------+---+--------+--------+--+
| | | GBPm | GBPm | |
+------------------------------------------------+---+--------+--------+--+
| Net cash from operating activities | | 74.6 | 35.3 | |
+------------------------------------------------+---+--------+--------+--+
| Interest received | | 1.7 | 0.8 | |
+------------------------------------------------+---+--------+--------+--+
| Proceeds on disposal of tangible fixed assets | | 0.6 | 1.9 | |
+------------------------------------------------+---+--------+--------+--+
| Purchases of tangible fixed assets | | (23.8) | (19.0) | |
+------------------------------------------------+---+--------+--------+--+
| Purchases of intangible assets | | (0.7) | (0.5) | |
+------------------------------------------------+---+--------+--------+--+
| Free cash flow | | 52.4 | 18.5 | |
+------------------------------------------------+---+--------+--------+--+
Despite a significant increase in free cash flow, net debt increased to
GBP174.5m (2007 - GBP94.8m). This was principally due to the acquisition of Capo
Industries (GBP44.1m) and foreign exchange losses of GBP79.5m, which arose due
to a 28% increase in the value of the US dollar against Sterling in the fourth
quarter of 2008.
Revenue
Group revenue increased by GBP91.7m (19%) to GBP562.4m (2007 - GBP470.7m)
including a full year contribution of GBP6.9m from Absolute Manufacturing, which
was acquired on 10 December 2007, and GBP19.9m from Capo Industries, which was
acquired on 25 January 2008. If the effect of acquisitions and a year-on-year
beneficial exchange impact of GBP39.6m are excluded then underlying revenue grew
by 5% on a constant currency basis. In 2008, 64% of Group sales originated from
North America, 18% from the rest of Europe, 11% from the United Kingdom and 7%
from the Rest of the World.
Operating profit
Group operating profit increased by 44% to GBP59.8m (2007 - GBP41.5m), primarily
due to increased profitability in organic operations and acquisition
contributions. Adjusted operating profit increased by GBP19.5m (43%) to
GBP64.5m (2007 - GBP45.0m). Adjusted operating profit is that before loss on
disposal of fixed assets of GBPnil (2007 - GBP0.7m), amortisation of intangible
assets arising on acquisitions of GBP4.7m (2007 - GBP3.3m) and the release of
provision originally set up on a previous acquisition of GBPnil (2007 -
GBP0.5m). If the effects of the acquisitions (an increase in reported operating
profit of GBP3.3m) and foreign currency effects (GBP3.5m benefit) are excluded,
then underlying adjusted operating profit increased by 26% on a constant
currency basis.
Finance costs
Finance costs, net of investment income of GBP2.7m (2007 - GBP1.0m), increased
to GBP8.5m (2007 - GBP7.2m). This was due to an increase in interest costs on
borrowings to GBP6.8m (2007 - GBP6.4m) as the average level of the Group's debt
increased following the acquisition of Capo Industries in January 2008. Pension
related charges also increased, to GBP1.7m in 2008 (2007 - GBP0.8m), principally
as a result of higher interest costs relating to the unwinding of discounted
liabilities in the Group's pension schemes.
Profit before tax
Adjusted profit before tax increased by 48% to GBP56.0m (2007 - GBP37.8m).
Reported profit before tax increased to GBP51.3m (2007 - GBP34.3m).
Tax charge
The total tax charge increased to GBP12.1m (2007 - GBP6.4m) due to the increase
in the Group's taxable profits. Net tax benefits, arising on the loss on sale
of fixed assets (applicable to 2007 only), amortisation of intangible assets
from acquisitions and the release of the provision originally set up on a
previous acquisition (applicable to 2007 only), totalled GBP1.9m (2007 -
GBP1.4m). If these are added back then the resultant tax charge of GBP14.0m
(2007 - GBP7.8m) represented an underlying rate of 25.0% (2007 - 20.6%) on the
adjusted profit before tax of GBP56.0m (2007 - GBP37.8m). The increase in the
underlying tax rate was mainly due to the increased proportion of the Group's
profits being generated in the USA, where the Group's effective tax rate is
approximately 36%.
Earnings per share
The weighted average number of shares, for the purposes of calculating undiluted
earnings per share, increased to 395.0 million (2007 - 389.0 million). Adjusted
earnings per share increased by 38% to 10.63p (2007 - 7.71p). Basic earnings
per share increased by 38% to 9.92p (2007 - 7.17p).
Dividends
A final dividend of 1.70 pence per share is proposed for 2008 (2007 final
dividend - 1.70p) which would cost GBP6.8m (2007 final dividend cost GBP6.7m).
This would bring the full year dividend to 2.60 pence per share, an 8% increase
over the prior year's 2.40 pence per share. The cash outflow incurred in 2008,
in respect of the final dividend for 2007 and the interim dividend for 2008, was
GBP10.3m (2007 - GBP8.1m).
Research and development
The Group's expenditure on research and development increased to GBP8.6m during
2008 (2007 - GBP8.2m). Expenditure was mainly incurred on designing and
engineering products in accordance with individual customer specifications and
developing specific manufacturing processes for their production.
Capital expenditure
The Group increased its investment in capital expenditure in 2008 to GBP24.5m
(2007 - GBP19.5m) principally to increase capacity to meet demand in aerospace
markets. Disposal of assets no longer required raised GBP0.6m (2007 -
GBP1.9m). A lower level of capital expenditure is anticipated for 2009, as the
Group is now sufficiently capitalised for its near-term growth programmes.
Capital structure
The Group's Consolidated Balance Sheet at 31 December 2008 may be summarised as
follows:
+--------------------------------+-----------+-------------+-----------+
| | Assets | Liabilities | Net |
| | | | Assets |
+--------------------------------+-----------+-------------+-----------+
| | GBPm | GBPm | GBPm |
+--------------------------------+-----------+-------------+-----------+
| Property, plant and equipment | 138.4 | - | 138.4 |
+--------------------------------+-----------+-------------+-----------+
| Goodwill and intangible assets | 201.6 | - | 201.6 |
+--------------------------------+-----------+-------------+-----------+
| Current assets and liabilities | 193.8 | (125.9) | 67.9 |
+--------------------------------+-----------+-------------+-----------+
| Other non-current assets and | 3.7 | (9.7) | (6.0) |
| liabilities | | | |
+--------------------------------+-----------+-------------+-----------+
| Post-retirement obligations | - | (51.2) | (51.2) |
+--------------------------------+-----------+-------------+-----------+
| Total before net debt | 537.5 | (186.8) | 350.7 |
+--------------------------------+-----------+-------------+-----------+
| Net debt | 11.9 | (186.4) | (174.5) |
+--------------------------------+-----------+-------------+-----------+
| Total at 31 December 2008 | 549.4 | (373.2) | 176.2 |
+--------------------------------+-----------+-------------+-----------+
| Total at 31 December 2007 | 393.1 | (243.2) | 149.9 |
+--------------------------------+-----------+-------------+-----------+
Net assets increased by 18% in the year to GBP176.2m (2007 - GBP149.9m), in the
main as a result of retained profits and an appreciation of the US dollar and
the Euro against Sterling in 2008, and net assets per share increased by 15% to
44.2p (2007 - 38.4p). There were 398.3 million ordinary shares in issue at the
end of 2008 (2007 - 390.8 million).
Post-retirement obligations increased to GBP51.2m (2007 - GBP36.3m), with the
increase in deficit arising principally due to a decrease in returns on invested
assets, which was partially offset by the benefit of a higher rate of 6.4% being
used to discount the UK Pension Scheme liabilities (2007 - 5.9%).
Cash flow
The Group's free cash flow, whose derivation is set out in the table below,
increased significantly by 183% to GBP52.4m (2007 - GBP18.5m). The increased
inflow of GBP33.9m was largely driven by a combination of increased operating
profits of GBP59.8m, which were GBP18.3m ahead of last year, and net inflows
from working capital of GBP12.2m which were GBP22.5m ahead of last year (2007 -
outflow of GBP10.3m). Net capital expenditure of GBP23.9m (2007 - GBP17.6m)
remained ahead of the depreciation level of GBP18.7m (2007 - GBP14.6m),
excluding GBP4.7m (2007 - GBP3.3m) of amortisation of intangible assets acquired
on acquisition.
+---------------------------------------+--+---------+----------------------+--+
| | | 2008 | 2007 | |
+---------------------------------------+--+---------+----------------------+--+
| | | GBPm | GBPm | |
+---------------------------------------+--+---------+----------------------+--+
| Operating profit | | 59.8 | 41.5 | |
+---------------------------------------+--+---------+----------------------+--+
| Depreciation and amortisation | | 23.4 | 17.9 | |
+---------------------------------------+--+---------+----------------------+--+
| Working capital movement | | 12.2 | (10.3) | |
+---------------------------------------+--+---------+----------------------+--+
| Pension payments above service cost | | (5.2) | (3.0) | |
+---------------------------------------+--+---------+----------------------+--+
| Other items | | 1.7 | 2.4 | |
+---------------------------------------+--+---------+----------------------+--+
| Cash generated from operations | | 91.9 | 48.5 | |
+---------------------------------------+--+---------+----------------------+--+
| Interest paid (net) | | (6.8) | (6.2) | |
+---------------------------------------+--+---------+----------------------+--+
| Tax paid | | (8.8) | (6.2) | |
+---------------------------------------+--+---------+----------------------+--+
| Capital expenditure | | (24.5) | (19.5) | |
+---------------------------------------+--+---------+----------------------+--+
| Sale of fixed assets | | 0.6 | 1.9 | |
+---------------------------------------+--+---------+----------------------+--+
| Free cash flow | | 52.4 | 18.5 | |
+---------------------------------------+--+---------+----------------------+--+
| Dividends | | (10.3) | (8.1) | |
+---------------------------------------+--+---------+----------------------+--+
| Acquisitions and disposals | | (43.6) | (8.1) | |
+---------------------------------------+--+---------+----------------------+--+
| Share issues | | 1.3 | 0.2 | |
+---------------------------------------+--+---------+----------------------+--+
| Foreign exchange variations | | (79.5) | (0.8) | |
+---------------------------------------+--+---------+----------------------+--+
| Non-cash movements | | - | 0.2 | |
+---------------------------------------+--+---------+----------------------+--+
| Opening net debt | | (94.8) | (96.7) | |
+---------------------------------------+--+---------+----------------------+--+
| Closing net debt | | (174.5) | (94.8) | |
+---------------------------------------+--+---------+----------------------+--+
Net debt
Net debt increased by GBP79.7m in the year to GBP174.5m (2007 - GBP94.8m),
despite the Group's very strong free cash flow performance in 2008. The
principal reasons for the increase in net debt were the acquisition of Capo
Industries (GBP44.1m), and foreign exchange losses of GBP79.5m. These foreign
exchange losses occurred, in the main, in the fourth quarter of the year when
the US dollar appreciated against Sterling by 28%, impacting foreign currency
borrowings and forward exchange contracts that are used to hedge the Group's net
balance sheet exposure. At the year-end, net debt comprised gross borrowings of
GBP150.8m (with around 85% of the Group's gross borrowings in US dollars (31
December 2007 - 75%)), unrealised losses on forward exchange contracts of
GBP33.9m, finance lease commitments of GBP1.7m, and cash and cash equivalents of
GBP11.9m.
The Group's committed borrowing facilities contain a requirement that the ratio
of EBITDA (adjusted profit before interest, tax, depreciation and amortisation)
to net interest costs must exceed 3.5x, and that the ratio of net debt to EBITDA
must not exceed 3.0x. At 31 December 2008 the Group was operating well within
these covenants as the ratio of EBITDA to net interest costs was 12.0x and the
ratio of net debt to EBITDA was 2.1x.
Liquidity
As at 31 December 2008, the Group's gross borrowings were GBP150.8m (2007 -
GBP99.8m). The maturity of these borrowings, together with the maturity of the
Group's committed facilities, can be analysed as follows:
+---------------------------------------+------------+-----+------------+
| | Gross | (1) | Committed |
| | Borrowings | | Facilities |
+---------------------------------------+------------+-----+------------+
| | GBPm | | GBPm |
+---------------------------------------+------------+-----+------------+
| Within one year | 1.2 | | - |
+---------------------------------------+------------+-----+------------+
| In the second year | - | | - |
+---------------------------------------+------------+-----+------------+
| In years three to five | 20.2 | | 96.0 |
+---------------------------------------+------------+-----+------------+
| After five years | 129.4 | | 128.5 |
+---------------------------------------+------------+-----+------------+
| | 150.8 | | 224.5 |
+---------------------------------------+------------+-----+------------+
+-----+--------------------------------------------------------------+
| (1) | Gross borrowings include the use of bank overdrafts, other |
| | loans and committed facilities, but exclude finance leases |
| | and unrealised losses on forward foreign exchange contracts. |
+-----+--------------------------------------------------------------+
On 8 October 2008 the Group issued $120m (GBP83.3m at year-end exchange rates)
of new loan notes through a private placement offer. The issuance consisted of
three tranches of loan notes: $25m maturing in October 2015; $75m maturing in
October 2018; and $20m maturing in October 2020. The new loan notes carry a
weighted average fixed coupon rate of 6.77% per annum. The new funds were used
to repay $75m of loan notes, which matured on 22 October 2008, and also to
reduce the level of borrowings under the Group's GBP80m revolving credit
facility. At the year-end the Group had committed facilities of GBP224.5m, with
a weighted average maturity of 6.4 years. The Group is in a strong funding
position with the next material refinancing now not due until July 2012.
Going concern basis
The Group's business activities, performance and position are set out in the
Operations Review above and the Divisional Review below. The financial position
of the Group, its cash flows, liquidity position and borrowing facilities are
described within this Financial Review. In addition, a review of the principal
risks and uncertainties that are likely to affect the Group's future development
are set out below, together with a summary of the Group's policies and processes
in respect of capital and financial risk management including foreign exchange,
interest rate, credit and liquidity risks.
The Group meets its day-to-day working capital and other funding requirements
through a combination of long-term funding, in the form of revolving credit and
private placement facilities, and short-term overdraft lending. At 31 December
2008 approximately 85% of the Group's net debt was financed via revolving credit
and private placement facilities, with an average maturity of 6.8 years, and 15%
of the Group's net debt was financed via short-term overdraft facilities which
are due for renewal within 12 months. The Group is well funded, having concluded
a successful refinancing in October 2008 and now has no major borrowing facility
renewal before 2012.
However, current economic conditions create uncertainty particularly over the
level of demand for the Group's products (most notably in land vehicle markets)
and the exchange rate between Sterling and the US dollar, given that around 75%
of the Group's profits in 2008 were earned in the US and 85% of its gross
borrowings at 31 December 2008 were denominated in US dollars. For these
reasons, a sensitivity analysis has been performed on the Group's forecasts and
projections, to take account of reasonably possible changes in trading
performance together with foreign exchange fluctuations under the hedging
policies that are in place. This analysis shows that the Group will be able to
operate within the level of its current committed borrowing facilities and
banking covenants. As a consequence, and after making relevant other enquiries,
the Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, the Board has continued to adopt the going concern basis in
preparing the Group's Annual Report & Accounts 2008.
Changes in accounting policies
There have been no changes in accounting policies in the current year.
Divisional Review
The Group consists of two Divisions, Aerospace and Flexonics, whose performances
are discussed below. It should be noted that the results for 2007 have been
translated at 2008 average exchange rates in order to make appropriate
comparisons at constant currency.
Aerospace Division
+-----+----------------------------------------------+---------+--+-----------+--+--------+--+
| | 2008 | | 2007 | | Change | |
+----------------------------------------------------+---------+--+-----------+--+--------+--+
| | GBPm | | GBPm | | | |
+----------------------------------------------------+---------+--+-----------+--+--------+--+
| Revenue | 312.9 | | 265.8 (1) | | +18% | |
+----------------------------------------------------+---------+--+-----------+--+--------+--+
| Adjusted operating profit | 44.3 | | 35.8 (1) | | +24% | |
+----------------------------------------------------+---------+--+-----------+--+--------+--+
| Operating margin | 14.1% | | 13.5% | | - | |
+----------------------------------------------------+---------+--+-----------+--+--------+--+
| (1) | 2007 results translated using 2008 average exchange rates. |
+-----+----------------------------------------------+---------+--+-----------+--+--------+--+
The revenue of the Aerospace Division grew by GBP47.1m (18%) to GBP312.9m (2007
- GBP265.8m at constant currency). The year-on-year effect of acquisitions was
GBP26.8m at constant currency, with Absolute Manufacturing acquired in December
2007 and Capo Industries acquired in January 2008. Organic revenue therefore
increased by 8%.
Demand in wide-bodied aerospace markets (namely Boeing, Airbus and the
associated engine builders), which accounts for 38% of this Division's sales,
was strong for the majority of the year. Total aircraft deliveries by Boeing and
Airbus were 858 aircraft this year (2007 - 894), a good increase in underlying
delivery rates after taking account of a significant reduction in Boeing
deliveries in the second half of the year due to a two month Boeing machinists'
strike which reduced its total deliveries for the full year by around 70
aircraft. Of equal importance, the 2008 net order intake was 1,439 aircraft,
over one and a half times the level of deliveries, and the combined Boeing and
Airbus order book stood at 7,429 aircraft at the year end. This represents over
8 years of deliveries at current build rates and continues to represent a solid
foundation for the Group's future.
The regional jet market was strong for the majority of 2008. Combined deliveries
of 280 aircraft by the principal regional jet manufacturers, Embraer (166
aircraft) and Bombardier (114 aircraft), were 9% higher than the combined total
of 258 achieved in 2007. The business jet market was also strong for most of the
year, with 1,315 deliveries being some 16% higher than in 2007 (1,138
deliveries), although demand levels began to soften late in the year due to the
impact of the global financial crisis. Military markets remained robust
overall, with increased volumes of helicopter parts delivered to Sikorsky, and
stable demand in other US Government programmes.
The Aerospace Division's adjusted operating profit (before profit/loss on
disposal of fixed assets and amortisation of intangible assets arising on
acquisitions) increased strongly by GBP8.5m (24%) to GBP44.3m (2007 - GBP35.8m
at constant currency) with acquisitions accounting for GBP3.3m of this increase.
Excluding acquisitions, organic adjusted operating profit improved by 15%
compared to 2007. The Division's operating margin increased by 0.6 percentage
points to 14.1% (2007 - 13.5%). These increases were driven by further
operational improvements across the Division but were tempered, in the fourth
quarter, by the impact of the Boeing strike.
Capital expenditure for the Aerospace Division increased to GBP17.1m in 2008
(2007 - GBP10.9m), as production capacity and increased capability were added to
meet the demands of both existing and future major programmes, such as the C130
military transport plane, the Boeing 787 Dreamliner and the Joint Strike
Fighter. Total capital expenditure in this Division represented 1.9x
depreciation (2007 - 1.6x).
Flexonics Division
+-----+----------------------------------------------+---------+--+--------+--+--------+--+
| | 2008 | | 2007 | | Change | |
+----------------------------------------------------+---------+--+--------+--+--------+--+
| | GBPm | | GBPm | | | |
+----------------------------------------------------+---------+--+--------+--+--------+--+
| Revenue | 250.1 | | 245.0 | | +2% | |
| | | | (1) | | | |
+----------------------------------------------------+---------+--+--------+--+--------+--+
| Adjusted operating profit | 25.9 | | 18.6 | | +39% | |
| | | | (1) | | | |
+----------------------------------------------------+---------+--+--------+--+--------+--+
| Operating margin | 10.4% | | 7.6% | | - | |
+----------------------------------------------------+---------+--+--------+--+--------+--+
| (1) | 2007 results translated using 2008 average exchange rates. |
+-----+----------------------------------------------+---------+--+--------+--+--------+--+
Revenue for the Flexonics Division increased by GBP5.1m (2%) to GBP250.1m (2007
- GBP245.0m at constant currency). The Division benefited from sustained
strength in industrial markets (oil refining, power generation and chemical
processing) with the Group's industrial operations based in Texas and Germany
performing well all year. Industrial markets accounted for almost half of this
Division's sales in 2008 and order books remain healthy going into 2009.
However, gains in the industrial operations were largely offset by an overall
reduction in the Group's principal land vehicle markets, in particular in
medium/heavy duty trucks in North America and light vehicles in both North
America and Europe. Despite satisfactory volumes in the first half of the year,
these markets declined rapidly in the fourth quarter. Sales of medium/heavy duty
trucks in North America were 298,000 in 2008, a decline of 20% compared to the
371,000 sold in 2007. Light vehicle sales in North America fell by 2.9m vehicles
(18%) to 13.2m and in Europe were down by 1.3m vehicles (8%) to 15.0m. The
decline in the seasonally adjusted annual rate of sales of light vehicles in
North America in December 2008 was even more marked at 10.3m vehicles, a
reduction of 36% compared to 16.1m vehicles in December 2007. Similar falls were
also seen in most other geographic regions.
Despite the increasingly difficult land vehicle markets, the Flexonics
Division's adjusted operating profit for 2008 increased by an excellent 39% to
GBP25.9m (2007 - GBP18.6m at constant currency). All of the growth was organic,
as no acquisitions have been undertaken in this Division in recent years. The
improved performance was achieved through additional volumes in the industrial
operations, a continuing improvement in contribution from the heavy duty diesel
products, improved factory performances across the Division and the mitigating
impact of prompt action taken in all land based vehicle operations, in the
fourth quarter, to reduce both direct and indirect costs as demand levels fell.
Profit preservation plans were implemented at all seven land vehicle operations,
at a cost of GBP1.9m, including a reduction in workforce of 380 people
representing 13% of the Division's employees. Savings of GBP5.3m will be
realised from this initiative in 2009. In total, the operating margin of the
Flexonics Division for 2008 increased by a very satisfactory 2.8 percentage
points to 10.4% (2007 - 7.6 %).
Capital expenditure for the Division decreased to GBP7.4m or 0.8x depreciation
in 2008 (2007 - GBP8.5m or 1.1x depreciation), reflecting weakening market
conditions and the fact that capital expenditure levels in recent years, in
particular in the land based vehicle operations, have been well above
depreciation.
Outlook
A detailed Outlook statement is included in the Chairman's Statement above.
Demand conditions are strongest in the military and defence aerospace sector and
in the Group's industrial markets. Large commercial aircraft build rates are
stable. However, demand for regional and business jets has weakened and land
vehicle markets are very weak and are expected to remain so for the foreseeable
future. In response, the Group has implemented profit preservation plans in
affected operations, and by the end of April 2009 it is anticipated that total
headcount will have fallen by around 1000 employees (17% of the workforce), of
which approximately 130 are UK based.
Against this backdrop the Group concluded a successful refinancing in October
2008, remains cash generative, is operating well within bank covenants and does
not have to renew any major banking facilities until 2012. Going forward, the
Group is well funded with healthy long-term prospects.
Risks and uncertainties
There are a number of potential risks and uncertainties which could have a
material impact on the Group's future performance and could cause actual results
to differ materially from those expected or from historical results.
Global credit crisis
The current global financial crisis presents significant challenges to the
Group, principally the level of market demand in key aerospace, industrial and
land vehicle markets and also the need to ensure that the Group is adequately
financed and hence able to settle its financial liabilities as they fall due.
The potential market demand and related customer risks are discussed in more
detail directly below. The Group's financing position is set out in the
Financial Review above, and the way the Group manages its capital structure,
foreign exchange, interest rate, liquidity and other financial risks is set out
below.
Markets and customers
Long-term growth in demand in the Group's major markets is an essential
foundation for future growth. The Group is well positioned in this respect in
its key aerospace and industrial markets, and in the emission related sectors of
land based vehicle markets where increasingly stringent legislation will ensure
that long-term demand for the Group's land vehicle based products remains high.
However, the Group has already experienced a contraction in demand in land
vehicle markets in the latter part of 2008, and has implemented rationalisation
plans to preserve profitability levels that include a reduction in personnel of
480 across the Group, representing approximately 8% of the Group's total
workforce. The short-term outlook in land vehicle markets remains depressed, and
a further significant contraction in these or the Group's other key markets
could potentially have a material impact on the Group's profitability.
In addition, the Group maintains close relationships with key customers in both
Divisions. Superior customer service, in particular the provision of innovative
customer solutions and quality products delivered on time and fully in line with
specifications, are critical components of customer value that ensure continued
participation in existing and future development programmes. Provision of
superior customer value is a top priority within the Group.
The Group derived 56% of its sales in 2008 from the aerospace market with the
most significant element attributable to the large commercial aircraft sector
which accounted for 21% of Group sales. Whilst the commercial aerospace market
is expected to remain buoyant in the long term, and build rates for wide-bodied
commercial aircraft are anticipated to remain stable in 2009, should this not be
the case the Group's financial performance would be adversely affected, as was
the case in 2001 following the events of "9/11".
The Group has a relatively balanced portfolio of aerospace customers, nearly all
of whom are financially strong with the largest, Boeing, representing only 7% of
2008 Group sales. The immediate and total loss of such a customer is considered
to be highly improbable given that many parts are typically supplied by a number
of Senior's operations to a range of customer locations, with many products on
long-term agreements.
The Group's industrial markets are diverse, fragmented and generally healthy,
with the largest single customer representing only 1% of 2008 Group sales. The
failure of any single industrial customer is, therefore, unlikely to have a
material effect on the Group.
The economic viability of North American and European automotive manufacturers
remains uncertain. Whilst funds have been made available by the French
government to support the Group's major European automotive customers, and in
the US the new US Presidential administration has indicated its intention to
ensure that an appropriate long-term rescue package is provided, the details of
this rescue package are uncertain. It is therefore possible that one of the
larger US automotive manufacturers may seek protection from its creditors (known
as going into Chapter 11 in the US), which in turn could result in some of its
suppliers seeking similar creditor protection. In this event the Group may not
recover all of the amounts owed to it. However, production of vehicles, and
hence sales of the Group's relevant products would likely continue, albeit at a
lower level, so rendering the impact to be of a one-off, rather than ongoing
nature. The largest manufacturer accounted for around 4% of 2008 Group sales,
both to the manufacturer directly and/or to its supplier base.
Competitors
The Group operates in competitive market sectors. The aerospace market is
principally located in North America and Europe and this is where the Group's
aerospace operations are situated, so enabling commercial, operational and
engineering support to be readily given to its customers. Whilst the industry is
consolidating, the supplier base remains fragmented and the Group participates
in a diverse range of aerospace programmes with a broad range of end customers.
Hence, the actions of a single competitor are unlikely to have a material impact
on the results of the Group.
In the Flexonics Division, the industrial markets in which the Group operates
(47% of 2008 divisional sales) are diverse both geographically and in nature,
with engineering skills, technical qualifications and service levels the key to
success for most of them. Again the markets are competitive but no single
competitor represents a material threat to the Group.In the automotive markets,
products like heavy duty diesel engine products are similar in nature to those
produced in the Aerospace Division, in that engineering support and process
engineering are very important to the customers' choice of supplier, and the
Group therefore maintains appropriate resources close to customers' locations in
these cases. However, there are other automotive products where competition is
fiercer and price more the defining factor. Where this is the case, the Group is
increasingly manufacturing products in its lower cost operations in the Czech
Republic, South Africa, Brazil and India, rather than in its North American and
European operations.
Defined benefit pension plans
The Group operates a number of defined benefit pension plans, with the largest
being a UK scheme, as well as a number of geographically based defined
contribution and government sponsored arrangements. The primary liability for
funding the UK defined benefit pension scheme rests with the participating
employer. The Group's combined pension deficits at 31 December 2008 were
GBP51.2m (31 December 2007 GBP36.3m). A 10 year funding plan was approved by the
UK Pensions Regulator, based on the actuarial valuation of the UK scheme
undertaken in April 2007. Under this funding plan the Group is committed to
contributing an additional GBP5m per annum above service cost into this scheme
for 10 years. The Group also plans to make additional voluntary contributions to
the smaller US schemes, of approximately GBP1m, in 2009 to preserve their
funding positions. These funding plans may be subject to change depending on
future changes in the level of scheme deficits.
By virtue of legislation, there may be additional risks for the Group in
relation to its pension schemes. These are largely generic risks associated with
the operation of UK defined benefit pension schemes (including the imposition of
more onerous employer contribution/funding requirements by the Pensions
Regulator, the requirement to fund the winding-up of pension schemes by trustees
on a "buy-out basis" and the provision of funding guarantees where required by
the Pensions Regulator). Should the Pensions Regulator impose any of these
requirements, it could have an adverse effect on the results of the Group's
operations. In order to mitigate some of these risks the Group closed the UK
defined benefit scheme to new employees from April 2008 and has implemented a
liability-driven investment strategy to reduce the risk from the scheme.
Capital risk management
The Group manages its capital structure to safeguard its ability to continue as
a going concern while maximising the return to stakeholders through the
optimisation of the balance between debt and equity. In considering the
appropriate level of net debt the Group pays close attention to its level as
compared to the cash generation potential of the Group, measured by adjusted
profit before interest, tax, depreciation and amortisation ("EBITDA"). The Group
also monitors capital on the basis of a gearing ratio. This ratio is calculated
as net debt divided by total capital. Net debt is calculated as the total of
bank and other loans, obligations under finance leases, forward exchange
contract losses less cash and cash equivalents and forward exchange contract
gains (as shown in Note 11c). Total capital is the equity shown in the
Consolidated Balance Sheet.
All of the Group's external borrowing facilities have a requirement for the
ratio of net debt to EBITDA to be less than 3.0x. Internally the Group aims for
this ratio to not exceed 2.5x. At 31 December 2008 net debt was 2.1x the Group's
level of EBITDA (31 December 2007 - 1.6x). In addition, all borrowing facilities
contain the requirement for EBITDA interest cover (the number of times net
interest is covered by the Group's EBITDA) to be in excess of 3.5x. At 31
December 2008 EBITDA was 12.0x the level of net interest (31 December 2007 -
9.3x).
The Group's strategy in respect of gearing is to target a long-term gearing
ratio within the range of 60% to 80%. Ratios outside this range may still be
considered to be acceptable, in certain circumstances. The gearing ratio for the
Group at the end of 2008 was 99% (2007 - 63%). The increase in 2008 is
attributable to the acquisition of Capo Industries (GBP44.1m) in January 2008
together with foreign translation losses (GBP79.5m) incurred as Sterling
weakened significantly against most major currencies in the fourth quarter of
2008.
Financial risk management
The Group's activities expose it to a variety of financial risks including
foreign exchange risk, interest rate risk, credit risk and liquidity risk. The
Group's overall risk management programme focuses on the unpredictability of
financial markets and seeks to minimise potential adverse effects on the Group's
financial performance.
The Group uses derivative financial instruments to hedge certain risk exposures.
The use of financial derivatives is governed by the Group's policies approved by
the Board, which provide written principles on foreign exchange risk, interest
rate risk, credit risk, the use of financial derivatives and non-derivative
financial instruments, and the investment of excess liquidity. Compliance with
policies and exposures limits is reviewed by the Treasury Committee on a regular
basis. The Group does not enter into or trade financial instruments, including
derivative financial instruments, for speculative purposes.
Foreign exchange risk management
The Group enters into forward foreign exchange contracts to hedge the exchange
risk arising on the operations' trading activities in foreign currencies and on
the Group's net investments outside the UK. The following sensitivity analysis
of the Group's exposure to foreign currency risk at the reporting date has been
determined based on the change taking place at the beginning of the financial
year and left unchanged throughout the reporting period with all other variables
held constant (such as interest rates).
Translation risk
The Group derived 89% of its revenue from businesses outside the United Kingdom,
of which 64% related to operations in North America. Fluctuations in the value
of the US dollar and other currencies in relation to the Pound Sterling have
had, and may continue to have, a significant impact on the results of the
Group's operations when reported in Pound Sterling. The Group has decided not to
hedge this translation risk. A 10% appreciation (or depreciation) of the US
dollar against Pound Sterling would have increased (or decreased) 2008 Group
operating profit by GBP4.8m.
The majority of shareholder funds are denominated in foreign currency,
particularly in US dollars. In order to match the Group's net asset exposures,
to comply with a bank covenant relating to the Group's consolidated net worth
that expired in 2008, hedges were previously put in place through a combination
of borrowings in the same currencies and foreign exchange forward contracts.
Given that this bank covenant attached only to borrowings that matured during
2008, and hence no longer exists under the replacement facilities, the Group
will not replace the forward contracts (which all expire during 2009) and will
instead hedge its remaining foreign exchange exposure by seeking to match
borrowings in the same currencies and proportions as EBITDA is generated. This
change will provide an improved hedge for the Group's foreign exchange exposure
in relation to its remaining bank covenants.
At the end of 2008, the achieved cover of the Group's net assets, including
goodwill, denominated in currencies other than Pound Sterling were: US dollar at
83% (2007 - 76%), Euro at 46% (2007 - 94%), Czech Crown at 32% (2007 - 110%) and
Canadian Dollar at 86% (2007 - 57%). Net assets denominated in Indian Rupees,
South African Rand, and Brazilian Real were not hedged in 2008 and 2007. A 10%
appreciation of all other currencies against Pound Sterling would have increased
net equity by GBP8.8m, GBP5.0m of which would have been due to the US dollar
movement.
Transaction risk
The Group has a number of transaction-related foreign currency exposures;
particularly the Euro with the South African Rand, and the US dollar with Pound
Sterling. The Group seeks to hedge between 80% and 100% of transaction-related
exposures for 15 months forward by applying hedge accounting where the forwards
can be designated in a qualifying cash flow hedge relationship. Based on the net
of the annual sales and purchase-related exposures after hedging, a 10%
appreciation (or depreciation) of the Euro against the Rand would have increased
(or decreased) operating profit by GBP0.2m and a 10% appreciation (or
depreciation) of the US dollar against Pound Sterling would have increased (or
decreased) operating profit by GBP0.4m. All other transaction-related foreign
currency exposures after hedging are immaterial. Any impact on profit would be
spread over the following 12 months and on cash flow over the following 15
months. The impact on net equity is determined by the unrecognised portion of
open forward contracts at the year end. A 10% appreciation (or depreciation) of
the Euro against the Rand and of the US dollar against Pound Sterling would have
decreased (or increased) net equity by GBP0.6m and GBP2.7m, respectively.
Interest rate risk management
On occasion the Group enters into interest rate swaps to mitigate the risk of
rising interest rates and to balance the borrowing structure between fixed and
variable debt. The following sensitivity analysis of the Group's and the
Company's exposure to interest rate risk at the reporting date has been
determined based on the exposure to interest rates at the beginning of the
financial year, and held constant throughout the reporting period with all other
variables held constant (such as foreign exchange rates). The Group has a policy
of maintaining approximately 60% of its borrowing costs at fixed rates. The
Group generally borrows long term in fixed rates, but may occasionally borrow at
floating rates and swap into fixed. The Group has a policy of applying cash flow
hedging in this instance. Occasionally a portion of the fixed debt interest is
swapped into floating rates, when the Group would apply fair value hedging.
The Group is exposed to interest rate movements, particularly on US dollar
denominated debt. If variable interest rates had been 0.5% lower (or higher),
the Group and Company's net profit would have increased (or decreased) by
GBP0.3m. Any fixed interest debt is held up to maturity and not fair value
adjusted through profit and loss. An increase (or decrease) of 0.5% in the US
dollar market interest rate for the fixed rate debt held up to maturity would
have decreased (or increased) the fair value of the Group's borrowings by
GBP3.7m. The Group and Company's sensitivity to interest rates has decreased
during the current period mainly due to the increased proportion of fixed debt.
Credit risk management
The Group's credit risk is primarily attributable to its trade receivables. The
credit quality of customers is assessed taking into account their financial
position, past experience and other factors. In determining the recoverability
of trade receivables, the Group considers any change in the credit quality of
the trade receivable from the date credit was initially granted up to the
reporting date. The Group has no significant concentration of credit risk, with
exposure spread over a large number of counterparties and customers. The Group
is guarantor under the lease of two buildings in the UK, which arose on the
disposal of former Group owned subsidiaries in 2001 and 2004.
Credit risk on liquid funds and derivative financial instruments is limited
because the counterparties are financial institutions with high credit ratings
assigned by international credit rating agencies. The carrying amount of
financial assets recorded in the financial statements, which is net of
impairment losses, represents the Group and Company's maximum exposure to credit
risk.
Liquidity risk management
Liquidity risk reflects the risk that the Group will have insufficient resources
to meet its financial liabilities as they fall due. The Group manages liquidity
risk by maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities. Cash flow
forecasts are produced monthly, together with appropriate downside capacity
planning and scenario analysis, to ensure that bank covenant and liquidity
targets will be met. The Directors also regularly assess the balance of capital
and debt funding of the Group, as part of a process to satisfy the Group's
long-term strategic funding requirements.
The global credit crisis presents a potential risk to the Group's funding
status, and steps already taken in relation to changes in market conditions and
in respect of the long-term financing of the Group have been discussed earlier
in this OFR. In summary, the Group has incurred costs of GBP1.9m in 2008 in
rationalising various land vehicle operations, and has reduced the total
workforce by 8% in the fourth quarter of 2008. In addition, a successful major
refinancing was completed in October 2008. As a result, the Group is currently
in a very well-funded position with significant headroom and no major renewal of
borrowing facilities now due until 2012. Group management is prepared to take
further action to rationalise operations as necessary to mitigate the impact of
any further downturn in market demand, wherever this may occur. The Group has an
experienced management team that was also substantially in place during the
market downturn that occurred after "9/11", a period during which the Group
generated significant positive free cash flow. It is considered unlikely that
the Group will face any significant funding issues in the foreseeable future.
Resources
Employees
The key resource of the Group is its employees who have extensive knowledge of
the Group's key markets, customers, product technology and manufacturing
processes. The average number of employees employed in the Group during 2008 was
5,822 (2007 - 5,684). Of these 4,984 were in production related roles, 61 in
distribution, 309 in sales and 468 in administration. Senior is a global group
operating in 11 countries. At the end of 2008 the Group employed a total of
5,457 people with 52% located in North America, 17% in the United Kingdom, 20%
in the rest of Europe and 11% in the Rest of the World.
Manufacturing technology
A key strength of the Group is in its manufacturing technology and production
processes which help maximise production efficiency and product quality. This in
turn maintains and enhances the Group's reputation for delivering quality
added-value products to its customers on time and at a competitive price. During
2008 the Group spent GBP24.5m (2007 - GBP19.5m) on capital expenditure to add to
the Group's manufacturing capability, as well as its production capacity. This
was 1.3x the depreciation level (2007 - 1.3x).
Financial
The Group funds its activities through a mixture of equity and debt financing.
It obtains its equity financing from a wide range of nonrelated institutional
investors who trade the Company's shares on the London Stock Exchange. The
largest holder has an interest in around 8% of the shares of the Company. As at
31 December 2008, the Company's share price was 39.0p, giving it a market
capitalisation of around GBP155.3m. In respect of debt financing, at the end of
2008, the Group had committed borrowing facilities totalling GBP224.5m of which
GBP174.5m was being utilised. The committed facilities at this time consisted of
$35m (GBP24.3m) of loan notes due in 2014, $25m (GBP17.4m) of loan notes due in
2015, $30m (GBP20.8m) of loan notes due in 2017, $75m (GBP52.1m) of loan notes
due in 2018, $20m (GBP13.9m) of loan notes due in 2020, an GBP80.0m
multi-currency revolving credit facility maturing in 2012 and a $23m (GBP16.0m)
bilateral facility maturing in 2011.
Corporate Responsibility
The policy of the Board is to seek to enhance shareholder value in an ethical
and socially responsible manner, taking into account the wishes of all
stakeholders, and with a particular focus on health and safety and preserving
the environment. Two of the Group's six KPIs, namely reductions in carbon
dioxide emissions and lost time injuries, are targeted at this area. Extensive
details of the Group's corporate and social responsibility principles and
performance indices are set out in a separate "Corporate Social Responsibility
Report" in the Annual Report & Accounts 2008.
Directors' Responsibility Statement
We confirm to the best of our knowledge:
1. the Financial Statements, prepared in accordance with IFRS as adopted by the
European Union, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings included in the
consolidation taken as a whole; and
2. the Operating and Financial Review, which is incorporated into the Directors'
Report, includes a fair review of the development and performance of the
business and the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the principal
risks and uncertainties they face.
By order of the Board
+------------------------------+---------------------+
| Mark Rollins | Simon Nicholls |
+------------------------------+---------------------+
| Group Chief Executive | Group Finance |
| | Director |
+------------------------------+---------------------+
| 27 February 2009 | |
+------------------------------+---------------------+
Senior plc
Consolidated Income Statement
For the year ended 31 December 2008
+-------------------------------------------+--+-------+--+--------+----+----------+
| | |Notes | | Year | | Year |
| | | | | ended | | ended |
| | | | | 2008 | | 2007 |
+-------------------------------------------+--+-------+--+--------+----+----------+
| | | | | GBPm | | GBPm |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Continuing operations | | | | | | |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Revenue | | 3 | | 562.4 | | 470.7 |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Trading profit | | | | 59.8 | | 42.2 |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Loss on sale of fixed assets | | | | - | | (0.7) |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Operating profit (1) | | 3 | | 59.8 | | 41.5 |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Investment income | | | | 2.7 | | 1.0 |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Finance costs | | | | (11.2) | | (8.2) |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Profit before tax (2) | | | | 51.3 | | 34.3 |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Tax | | 5 | | (12.1) | | (6.4) |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Profit for the period | | | | 39.2 | | 27.9 |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Attributable to: | | | | | | |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Equity holders of the parent | | | | 39.2 | | 27.9 |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Earnings per share | | | | | | |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Basic | | 7 | | 9.92p | | 7.17p |
+-------------------------------------------+--+-------+--+--------+----+----------+
| Diluted | | 7 | | 9.78p | | 7.00p |
+-------------------------------------------+--+-------+--+--------+----+----------+
+-------------------------------------------+--+------+--+--------+----+----------+
| (1) Adjusted operating profit | | 4 | | 64.5 | | 45.0 |
+-------------------------------------------+--+------+--+--------+----+----------+
| (2) Adjusted profit before tax | | 4 | | 56.0 | | 37.8 |
+-------------------------------------------+--+------+--+--------+----+----------+
Consolidated Statement of Recognised Income and Expense
For the year ended 31 December 2008
+------------------------------------------+--+------+---+--------+---+----------+
| | | | | Year | | Year |
| | | | | ended | | ended |
| | | | | 2008 | | 2007 |
+------------------------------------------+--+------+---+--------+---+----------+
| | | | | GBPm | | GBPm |
+------------------------------------------+--+------+---+--------+---+----------+
| (Losses)/gains on cash flow hedges | | | | (9.0) | | 0.5 |
+------------------------------------------+--+------+---+--------+---+----------+
| Losses on revaluation of financial | | | | (44.4) | | (2.6) |
| instruments | | | | | | |
+------------------------------------------+--+------+---+--------+---+----------+
| Exchange differences on translation of | | | | 59.9 | | 3.2 |
| foreign operations | | | | | | |
+------------------------------------------+--+------+---+--------+---+----------+
| Actuarial losses on defined benefit | | | | (15.0) | | (0.8) |
| pension schemes | | | | | | |
+------------------------------------------+--+------+---+--------+---+----------+
| Tax on items taken directly to equity | | | | 0.5 | | 2.1 |
+------------------------------------------+--+------+---+--------+---+----------+
| Net (expense)/income recognised directly | | | | (8.0) | | 2.4 |
| in equity | | | | | | |
+------------------------------------------+--+------+---+--------+---+----------+
| Amounts transferred to profit or loss on | | | | 3.2 | | (0.4) |
| cash flow hedges | | | | | | |
+------------------------------------------+--+------+---+--------+---+----------+
| Profit for the period | | | | 39.2 | | 27.9 |
+------------------------------------------+--+------+---+--------+---+----------+
| Total recognised income and expense for | | | | 34.4 | | 29.9 |
| the period | | | | | | |
+------------------------------------------+--+------+---+--------+---+----------+
| Attributable to: | | | | | | |
+------------------------------------------+--+------+---+--------+---+----------+
| Equity holders of the parent | | | | 34.4 | | 29.9 |
+------------------------------------------+--+------+---+--------+---+----------+
Consolidated Balance Sheet
As at 31 December 2008
+------------------------------------------+--+-------+---+--------+---+--------+
| | | Notes | | Year | | Year |
| | | | | ended | | ended |
| | | | | 2008 | | 2007 |
+------------------------------------------+--+-------+---+--------+---+--------+
| | | | | GBPm | | GBPm |
+------------------------------------------+--+-------+---+--------+---+--------+
| Non-current assets | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Goodwill | | 8 | | 184.0 | | 114.3 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Other intangible assets | | | | 17.6 | | 11.9 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Property, plant and equipment | | 9 | | 138.4 | | 93.6 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Deferred tax assets | | | | 0.4 | | 0.1 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Trade and other receivables | | | | 3.3 | | 3.5 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Total non-current assets | | | | 343.7 | | 223.4 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Current assets | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Inventories | | | | 99.6 | | 79.4 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Construction contracts | | | | 1.5 | | 2.9 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Trade and other receivables | | | | 92.7 | | 78.7 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Cash and cash equivalents | | 11a) | | 11.9 | | 8.7 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Total current assets | | | | 205.7 | | 169.7 |
+------------------------------------------+--+-------+---+--------+---+--------+
| | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Total assets | | | | 549.4 | | 393.1 |
+------------------------------------------+--+-------+---+--------+---+--------+
| | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Current liabilities | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Trade and other payables | | | | 151.8 | | 92.5 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Tax liabilities | | | | 8.0 | | 9.0 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Obligations under finance leases | | | | 0.2 | | 0.2 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Bank overdrafts and loans | | | | 1.2 | | 41.5 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Total current liabilities | | | | 161.2 | | 143.2 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Non-current liabilities | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Bank and other loans | | 11c) | | 149.6 | | 58.3 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Retirement benefit obligations | | 12 | | 51.2 | | 36.3 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Deferred tax liabilities | | | | 8.8 | | 3.3 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Obligations under finance leases | | | | 1.5 | | 1.3 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Others | | | | 0.9 | | 0.8 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Total non-current liabilities | | | | 212.0 | | 100.0 |
+------------------------------------------+--+-------+---+--------+---+--------+
| | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Total liabilities | | | | 373.2 | | 243.2 |
+------------------------------------------+--+-------+---+--------+---+--------+
| | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Net assets | | | | 176.2 | | 149.9 |
+------------------------------------------+--+-------+---+--------+---+--------+
| | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Equity | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Issued share capital | | | | 39.8 | | 39.1 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Share premium account | | | | 12.0 | | 11.3 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Equity reserve | | | | 1.7 | | 1.6 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Distributable reserve | | | | 19.4 | | 19.4 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Hedging and translation reserve | | | | 6.3 | | (4.4) |
+------------------------------------------+--+-------+---+--------+---+--------+
| Retained earnings | | | | 98.4 | | 84.3 |
+------------------------------------------+--+-------+---+--------+---+--------+
| Own shares | | | | (1.4) | | (1.4) |
+------------------------------------------+--+-------+---+--------+---+--------+
| Equity attributable to equity holders of | | | | 176.2 | | 149.9 |
| the parent | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| | | | | | | |
+------------------------------------------+--+-------+---+--------+---+--------+
| Total equity | | | | 176.2 | | 149.9 |
+------------------------------------------+--+-------+---+--------+---+--------+
Consolidated Cash Flow Statement
For the year ended 31 December 2008
+------------------------------------------+--+-------+--+--------+----+--------+
| | | Notes | | Year | | Year |
| | | | | ended | | ended |
| | | | | 2008 | | 2007 |
+------------------------------------------+--+-------+--+--------+----+--------+
| | | | | GBPm | | GBPm |
+------------------------------------------+--+-------+--+--------+----+--------+
| Net cash from operating activities | | 11a) | | 74.6 | | 35.3 |
+------------------------------------------+--+-------+--+--------+----+--------+
| Investing activities | | | | | | |
+------------------------------------------+--+-------+--+--------+----+--------+
| Interest received | | | | 1.7 | | 0.8 |
+------------------------------------------+--+-------+--+--------+----+--------+
| Disposal of subsidiary | | | | 0.1 | | 0.1 |
+------------------------------------------+--+-------+--+--------+----+--------+
| Proceeds on disposal of property, plant | | | | 0.6 | | 1.9 |
| and equipment | | | | | | |
+------------------------------------------+--+-------+--+--------+----+--------+
| Purchases of property, plant and | | | | (23.8) | | (19.0) |
| equipment | | | | | | |
+------------------------------------------+--+-------+--+--------+----+--------+
| Purchases of intangible assets | | | | (0.7) | | (0.5) |
+------------------------------------------+--+-------+--+--------+----+--------+
| Acquisition of Capo Industries | | 10 | | (44.1) | | - |
+------------------------------------------+--+-------+--+--------+----+--------+
| Acquisition of Sterling Machine | | | | 0.4 | | - |
+------------------------------------------+--+-------+--+--------+----+--------+
| Acquisition of AMT, net of cash acquired | | | | - | | (1.2) |
+------------------------------------------+--+-------+--+--------+----+--------+
| Acquisition of Absolute Manufacturing | | | | - | | (7.0) |
+------------------------------------------+--+-------+--+--------+----+--------+
| Net cash used in investing activities | | | | (65.8) | | (24.9) |
+------------------------------------------+--+-------+--+--------+----+--------+
| Financing activities | | | | | | |
+------------------------------------------+--+-------+--+--------+----+--------+
| Dividends paid | | | | (10.3) | | (8.1) |
+------------------------------------------+--+-------+--+--------+----+--------+
| Repayment of borrowings | | | | (85.9) | | (61.0) |
+------------------------------------------+--+-------+--+--------+----+--------+
| Repayments of obligations under finance | | | | (0.2) | | (0.2) |
| leases | | | | | | |
+------------------------------------------+--+-------+--+--------+----+--------+
| Share issues | | | | 1.3 | | 0.2 |
+------------------------------------------+--+-------+--+--------+----+--------+
| New loans raised | | | | 103.4 | | 55.9 |
+------------------------------------------+--+-------+--+--------+----+--------+
| Net cash (outflow)/inflow on forward | | | | (13.0) | | 0.4 |
| contracts | | | | | | |
+------------------------------------------+--+-------+--+--------+----+--------+
| Net cash used in financing activities | | | | (4.7) | | (12.8) |
+------------------------------------------+--+-------+--+--------+----+--------+
| Net increase/(decrease) in cash and cash | | | | 4.1 | | (2.4) |
| equivalents | | | | | | |
+------------------------------------------+--+-------+--+--------+----+--------+
| Cash and cash equivalents at beginning | | | | 4.9 | | 7.0 |
| of period | | | | | | |
+------------------------------------------+--+-------+--+--------+----+--------+
| Effect of foreign exchange rate changes | | | | 1.7 | | 0.3 |
+------------------------------------------+--+-------+--+--------+----+--------+
| Cash and cash equivalents at end of | | 11a) | | 10.7 | | 4.9 |
| period | | | | | | |
+------------------------------------------+--+-------+--+--------+----+--------+
Notes to the above Financial Statements
For the year ended 31 December 2008
1. General Information
These results for the year ended 31 December 2008 are an excerpt from the
forthcoming Annual Report & Accounts 2008 and do not constitute the Group's
statutory accounts for 2008 or 2007. Statutory accounts for 2007 have been
delivered to the Registrar of Companies, and those for 2008 will be delivered
following the Company's Annual General Meeting. The Auditors have reported on
both those accounts; their reports were unqualified and did not contain
statements under Sections 237(2) or (3) of the Companies Act 1985.
2. Accounting policies
Whilst the financial information included in this Annual Results Release has
been prepared in accordance with International Financial Reporting Standards
(IFRS) adopted by the European Union, this announcement does not itself contain
sufficient information to comply with IFRS. Full Financial Statements that
comply with IFRS are included in the Annual Report & Accounts 2008 which is
available at www.seniorplc.com, copies of which will be distributed on or soon
after 13 March 2009.
The accounting policies adopted are consistent with those followed in the
preparation of the Group's Annual Report & Accounts 2008 which are unchanged
from those adopted in the Group's Annual Report & Accounts 2007.
3. Segmental analysis
Under IFRS, segmental detail is presented according to a primary segment and a
secondary segment. The Group's primary segmental analysis is based on the
industries that it serves, Aerospace and Flexonics. The secondary analysis is
presented according to geographic markets comprising North America, Europe
(split between the UK and Rest of Europe) and the Rest of the World. This is
consistent with the way the Group manages itself and with the format of the
Group's internal financial reporting.
a) Business segments
Segment information for revenue, operating profit and a reconciliation to entity
net profit is presented below.
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| | Aerospace | Flexonics | Eliminations | Total | Aerospace | Flexonics | Elimination | Total |
| | | | / Central | | | | / Central | |
| | | | costs | | | | costs | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| | Year | Year | Year | Year | Year | Year | Year | Year |
| | ended | ended | ended | ended | ended | ended | ended | ended |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 | 2007 | 2007 |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| External | 312.4 | 250.0 | - | 562.4 | 245.9 | 224.8 | - | 470.7 |
| revenue | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Inter-segment | 0.5 | 0.1 | (0.6) | - | 0.3 | 0.2 | (0.5) | - |
| revenue | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Total revenue | 312.9 | 250.1 | (0.6) | 562.4 | 246.2 | 225.0 | (0.5) | 470.7 |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Adjusted | 44.3 | 25.9 | (5.7) | 64.5 | 33.4 | 17.4 | (5.8) | 45.0 |
| operating | | | | | | | | |
| profit (see | | | | | | | | |
| note 4) | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Loss on sale of | - | - | - | - | (0.3) | (0.4) | - | (0.7) |
| fixed assets | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Release of | - | - | - | - | - | 0.5 | - | 0.5 |
| provision from | | | | | | | | |
| previous | | | | | | | | |
| acquisition | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Amortisation of | (4.7) | - | - | (4.7) | (3.3) | - | - | (3.3) |
| intangible | | | | | | | | |
| assets from | | | | | | | | |
| acquisitions | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Operating | 39.6 | 25.9 | (5.7) | 59.8 | 29.8 | 17.5 | (5.8) | 41.5 |
| profit | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Investment | | | | 2.7 | | | | 1.0 |
| income | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Finance costs | | | | (11.2) | | | | (8.2) |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Profit before | | | | 51.3 | | | | 34.3 |
| tax | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Tax | | | | (12.1) | | | | (6.4) |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
| Profit after | | | | 39.2 | | | | 27.9 |
| tax | | | | | | | | |
+-----------------+-----------+-----------+--------------+--------+-----------+-----------+-------------+--------+
Segment information for assets, liabilities, additions to property, plant and
equipment and intangible assets and depreciation and amortisation is presented
below.
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
| | Assets | Liabilities | Additions | Depreciation | Assets | Liabilities | Additions | Depreciation |
| | | | to PPE | and | | | to PPE | and |
| | | | and | amortisation | | | and | amortisation |
| | | | intangibles | | | | intangibles | |
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
| | Year | Year | Year | Year | Year | Year | Year | Year |
| | ended | ended | ended | ended | ended | ended | ended | ended |
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
| | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 | 2007 | 2007 |
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
| Aerospace | 374.4 | 56.8 | 17.1 | 13.8 | 237.4 | 35.4 | 10.9 | 10.1 |
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
| Flexonics | 156.1 | 53.0 | 7.4 | 9.5 | 140.5 | 47.7 | 8.5 | 7.7 |
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
| Sub total | 530.5 | 109.8 | 24.5 | 23.3 | 377.9 | 83.1 | 19.4 | 17.8 |
| continuing | | | | | | | | |
| operations | | | | | | | | |
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
| Unallocated | 18.9 | 263.4 | - | 0.1 | 15.2 | 160.1 | 0.1 | 0.1 |
| corporate | | | | | | | | |
| amounts | | | | | | | | |
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
| Total | 549.4 | 373.2 | 24.5 | 23.4 | 393.1 | 243.2 | 19.5 | 17.9 |
+-----------------+--------+-------------+-------------+--------------+--------+-------------+-------------+--------------+
b) Geographical segments
The Group's operations are principally located in North America and Europe.
The following table provides an analysis of the Group's sales by geographical
market, irrespective of the origin of the goods/services. The carrying values
of segment assets and additions to property, plant and equipment and intangible
assets, are analysed by the geographical area in which the assets are located.
+-----------------+---------+---------+-------------+---------+---------+-------------+
| | Sales | Segment | Additions | Sales | Segment | Additions |
| | revenue | assets | to PPE | revenue | assets | to PPE |
| | | | and | | | and |
| | | | intangibles | | | intangibles |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| | Year | Year | Year | Year | Year | Year |
| | ended | ended | ended | ended | ended | ended |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| | 2008 | 2008 | 2008 | 2008 | 2007 | 2007 |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| North America | 338.4 | 376.1 | 16.2 | 267.3 | 235.8 | 13.1 |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| UK | 55.8 | 63.2 | 1.1 | 50.3 | 61.4 | 1.7 |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| Rest of Europe | 128.7 | 71.8 | 5.6 | 115.5 | 58.7 | 3.4 |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| Rest of World | 39.5 | 19.4 | 1.6 | 37.6 | 22.0 | 1.2 |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| Sub total | 562.4 | 530.5 | 24.5 | 470.7 | 377.9 | 19.4 |
| continuing | | | | | | |
| operations | | | | | | |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| Unallocated | - | 18.9 | - | - | 15.2 | 0.1 |
| corporate | | | | | | |
| amounts | | | | | | |
+-----------------+---------+---------+-------------+---------+---------+-------------+
| Total | 562.4 | 549.4 | 24.5 | 470.7 | 393.1 | 19.5 |
+-----------------+---------+---------+-------------+---------+---------+-------------+
The carrying values of segment assets all relate to continuing operations.
4. Adjusted operating profit and adjusted profit before tax
Â
Â
The provision of adjusted operating profit and adjusted profit before tax,
derived in accordance with the table below, has been included to identify the
performance of operations, from the time of acquisition or until the time of
disposal, prior to the impact of gains or losses arising from the sale of fixed
assets, release of a provision from a previous acquisition and amortisation of
intangible assets acquired on acquisitions.
+----------------------------------------------+---------+----------+
| | Year | Year |
| | ended | ended |
+----------------------------------------------+---------+----------+
| | 2008 | 2007 |
+----------------------------------------------+---------+----------+
| | GBPm | GBPm |
+----------------------------------------------+---------+----------+
| Operating profit | 59.8 | 41.5 |
+----------------------------------------------+---------+----------+
| Loss on sale of fixed assets | - | 0.7 |
+----------------------------------------------+---------+----------+
| Release of provision from previous | - | (0.5) |
| acquisition | | |
+----------------------------------------------+---------+----------+
| Amortisation of intangible assets from | 4.7 | 3.3 |
| acquisitions | | |
+----------------------------------------------+---------+----------+
| Adjustments to operating profit | 4.7 | 3.5 |
+----------------------------------------------+---------+----------+
| Adjusted operating profit | 64.5 | 45.0 |
+----------------------------------------------+---------+----------+
| Profit before tax | 51.3 | 34.3 |
+----------------------------------------------+---------+----------+
| Adjustments to profit as above before tax | 4.7 | 3.5 |
+----------------------------------------------+---------+----------+
| Adjusted profit before tax | 56.0 | 37.8 |
+----------------------------------------------+---------+----------+
5. Tax charge
+----------------------------------------------+---------+----------+
| | Year | Year |
| | ended | ended |
+----------------------------------------------+---------+----------+
| | 2008 | 2007 |
+----------------------------------------------+---------+----------+
| | GBPm | GBPm |
+----------------------------------------------+---------+----------+
| Current tax: | | |
+----------------------------------------------+---------+----------+
| Foreign tax | 9.8 | 5.6 |
+----------------------------------------------+---------+----------+
| Adjustments in respect of prior periods | (0.2) | (0.1) |
+----------------------------------------------+---------+----------+
| | 9.6 | 5.5 |
+----------------------------------------------+---------+----------+
| Deferred tax: | | |
+----------------------------------------------+---------+----------+
| Current year | 3.6 | 1.9 |
+----------------------------------------------+---------+----------+
| Adjustments in respect of prior periods | (1.1) | (1.0) |
+----------------------------------------------+---------+----------+
| | 2.5 | 0.9 |
+----------------------------------------------+---------+----------+
| | 12.1 | 6.4 |
+----------------------------------------------+---------+----------+
UK Corporation tax is calculated at an effective rate of 28.5% (2007 - 30%) of
the estimated assessable profit for the year. Taxation for other jurisdictions
is calculated at the rates prevailing in the respective jurisdictions.
6. Dividends
+----------------------------------------------+---------+----------+
| | Year | Year |
| | ended | ended |
+----------------------------------------------+---------+----------+
| | 2008 | 2007 |
+----------------------------------------------+---------+----------+
| | GBPm | GBPm |
+----------------------------------------------+---------+----------+
| Amounts recognised as distributions to | | |
| equity holders in the period: | | |
+----------------------------------------------+---------+----------+
| Final dividend for the year ended 31 | 6.7 | 5.4 |
| December 2007 | | |
| of 1.700p (2006 - 1.381p) per share | | |
+----------------------------------------------+---------+----------+
| Interim dividend for the year ended 31 | 3.6 | 2.7 |
| December 2008 | | |
| of 0.900p (2007 - 0.700p) per share | | |
+----------------------------------------------+---------+----------+
| | 10.3 | 8.1 |
+----------------------------------------------+---------+----------+
| Proposed final dividend for the year ended | 6.8 | 6.6 |
| 31 December 2008 | | |
| of 1.700p (2007 - 1.700p) per share | | |
+----------------------------------------------+---------+----------+
The proposed final dividend is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability in these Financial
Statements.
7. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Number of shares
+----------------------------------------------+---------+----------+
| | Year | Year |
| | ended | ended |
+----------------------------------------------+---------+----------+
| | 2008 | 2007 |
+----------------------------------------------+---------+----------+
| | m | m |
+----------------------------------------------+---------+----------+
| Weighted average number of ordinary shares | 395.0 | 389.0 |
| for the purposes of basic earnings per share | | |
+----------------------------------------------+---------+----------+
| Effect of dilutive potential ordinary | | |
| shares: | | |
+----------------------------------------------+---------+----------+
| Share options | 6.0 | 9.5 |
+----------------------------------------------+---------+----------+
| Weighted average number of ordinary shares | 401.0 | 398.5 |
| for the purposes of diluted earnings per | | |
| share | | |
+----------------------------------------------+---------+----------+
Earnings and earnings per share
+----------------------------------------------+----------+--------+----------+--------+
| | Year | Year | Year | Year |
| | ended | ended | ended | ended |
+----------------------------------------------+----------+--------+----------+--------+
| | 2008 | 2008 | 2007 | 2007 |
+----------------------------------------------+----------+--------+----------+--------+
| | Earnings | EPS | Earnings | EPS |
+----------------------------------------------+----------+--------+----------+--------+
| | GBPm | pence | GBPm | pence |
+----------------------------------------------+----------+--------+----------+--------+
| Profit for the period | 39.2 | 9.92 | 27.9 | 7.17 |
+----------------------------------------------+----------+--------+----------+--------+
| Adjust: | | | | |
+----------------------------------------------+----------+--------+----------+--------+
| Loss on sale of fixed assets net of tax of | - | - | 0.4 | 0.10 |
| GBPnil (2007 - GBP0.3m) | | | | |
+----------------------------------------------+----------+--------+----------+--------+
| Release of provision from acquisition net of | - | - | (0.3) | (0.08) |
| tax of GBPnil (2007 - GBP0.2m) | | | | |
+----------------------------------------------+----------+--------+----------+--------+
| Amortisation of intangible assets from | 2.8 | 0.71 | 2.0 | 0.52 |
| acquisitions net of tax of GBP1.9m (2007 - | | | | |
| GBP1.3m) | | | | |
+----------------------------------------------+----------+--------+----------+--------+
| Adjusted earnings after tax | 42.0 | 10.63 | 30.0 | 7.71 |
+----------------------------------------------+----------+--------+----------+--------+
| Earnings per share | | | | |
+----------------------------------------------+----------+--------+----------+--------+
| - basic | | 9.92p | | 7.17p |
+----------------------------------------------+----------+--------+----------+--------+
| - diluted | | 9.78p | | 7.00p |
+----------------------------------------------+----------+--------+----------+--------+
| - adjusted | | 10.63p | | 7.71p |
+----------------------------------------------+----------+--------+----------+--------+
| - adjusted and diluted | | 10.47p | | 7.53p |
+----------------------------------------------+----------+--------+----------+--------+
The effect of dilutive shares on the earnings for the purposes of diluted
earnings per share is GBPnil (2007 - GBPnil).
The denominators used for all basic, diluted and adjusted earnings per share are
as detailed in the "Number of shares" table above.
The provision of an adjusted earnings per share, derived in accordance with the
table above, has been included to identify the performance of operations, from
the time of acquisition or until the time of disposal, prior to the impact of
the following items:
+-----+--------------------------------------------------------------------------+
| ? | gains or losses arising from the sale of fixed assets |
+-----+--------------------------------------------------------------------------+
| ? | release of provision from previous acquisition |
+-----+--------------------------------------------------------------------------+
| ? | amortisation of intangible assets acquired on acquisitions. |
+-----+--------------------------------------------------------------------------+
8. Goodwill
Goodwill increased by GBP69.7m during the year to GBP184.0m (2007 - GBP114.3m).
The increase represents GBP29.8m recognised upon the acquisition of Capo
Industries during the year (see Note 10), GBP0.1m adjustment in respect of
Absolute Manufacturing acquired in December 2007 and GBP39.8m of exchange
translation differences. No impairment charges were recognised in 2008 (2007 -
GBPnil).
9. Property, Plant and Equipment
During the period, the Group spent GBP23.8m (2007 - GBP19.0m) on the acquisition
of property, plant and equipment. The Group also disposed of machinery with a
carrying value of GBP0.6m (2007 - GBP2.6m) for proceeds of GBP0.6m (2007 -
GBP1.9m).
10. Acquisitions
Capo Industries, Inc.
On 25 January 2008, the Group acquired 100% of the issued share capital of Capo
Industries, Inc., a manufacturer of highly engineered, complex super-alloy
components primarily for the aero-engine market, based in Chino near Los
Angeles, California, USA. The cash consideration was GBP44.6m, including costs,
of which GBP0.5m is payable in 2009. The acquisition was funded by the Group's
existing debt facilities and a new GBP20.0m short-term facility.
Set out below is a summary of the net assets acquired and details of the fair
value adjustments translated at the acquisition date exchange rate:
+---------------------------------------------+-------------+----------+
| | Carrying | Fair |
| | values | value |
| | pre- | |
| | acquisition | |
+---------------------------------------------+-------------+----------+
| | GBPm | GBPm |
+---------------------------------------------+-------------+----------+
| Intangible assets | - | 5.1 |
+---------------------------------------------+-------------+----------+
| Property, plant and equipment | 5.4 | 6.2 |
+---------------------------------------------+-------------+----------+
| Inventories | 3.8 | 3.8 |
+---------------------------------------------+-------------+----------+
| Trade and other receivables | 1.9 | 1.9 |
+---------------------------------------------+-------------+----------+
| Trade and other payables | (2.2) | (2.2) |
+---------------------------------------------+-------------+----------+
| Net assets acquired | 8.9 | 14.8 |
+---------------------------------------------+-------------+----------+
| Goodwill | | 29.8 |
+---------------------------------------------+-------------+----------+
| Total consideration | | 44.6 |
+---------------------------------------------+-------------+----------+
| Consideration satisfied by: | | |
+---------------------------------------------+-------------+----------+
| Cash | | 44.0 |
+---------------------------------------------+-------------+----------+
| Directly attributable costs | | 0.1 |
+---------------------------------------------+-------------+----------+
| Net cash outflow | | 44.1 |
+---------------------------------------------+-------------+----------+
| Deferred consideration | | 0.5 |
+---------------------------------------------+-------------+----------+
| Total consideration | | 44.6 |
+---------------------------------------------+-------------+----------+
The intangible assets acquired as part of the acquisition relate to customer
contracts, the fair value of which is dependent on estimates of attributable
future revenues, profitability and cash flows. The excess of the total
consideration over the fair value of the net assets acquired is recognised as
goodwill and represents the premium paid in anticipation of future profitability
from assets that are not capable of being separately identified and separately
recognised such as the assembled workforce.
Capo Industries contributed GBP19.9m revenue and GBP2.6m (before GBP0.3m
inventory mark-up) to the Group's operating profit from the date of acquisition
to 31 December 2008.
If the above acquisition had been completed on 1 January 2008, Group revenue for
the year ended 2008 would have been GBP563.7m and Group operating profit would
have been GBP59.9m.
11. Notes to the cash flow statement
a) Reconciliation of operating profit to net cash from operating activities
+----------------------------------------------+---------+----------+
| | Year | Year |
| | ended | ended |
+----------------------------------------------+---------+----------+
| | 2008 | 2007 |
+----------------------------------------------+---------+----------+
| | GBPm | GBPm |
+----------------------------------------------+---------+----------+
| Operating profit from continuing operations | 59.8 | 41.5 |
+----------------------------------------------+---------+----------+
| Adjustments for: | | |
+----------------------------------------------+---------+----------+
| Depreciation of property, plant and | 18.1 | 14.1 |
| equipment | | |
+----------------------------------------------+---------+----------+
| Amortisation of intangible assets | 5.3 | 3.8 |
+----------------------------------------------+---------+----------+
| Share options | 0.9 | 1.5 |
+----------------------------------------------+---------+----------+
| Loss on disposal of property, plant and | - | 0.7 |
| equipment | | |
+----------------------------------------------+---------+----------+
| Release of provision from previous | - | (0.5) |
| acquisition | | |
+----------------------------------------------+---------+----------+
| Pension payments in excess of service | (5.2) | (3.0) |
| cost | | |
+----------------------------------------------+---------+----------+
| Operating cash flows before movements in | 78.9 | 58.1 |
| working capital | | |
+----------------------------------------------+---------+----------+
| Decrease/(increase) in inventories | 7.6 | (8.7) |
+----------------------------------------------+---------+----------+
| Decrease/(increase) in receivables | 10.0 | (10.0) |
+----------------------------------------------+---------+----------+
| (Decrease)/increase in payables | (5.4) | 8.4 |
+----------------------------------------------+---------+----------+
| Working capital currency movements | 0.8 | 0.7 |
+----------------------------------------------+---------+----------+
| Cash generated by operations | 91.9 | 48.5 |
+----------------------------------------------+---------+----------+
| Income taxes paid | (8.8) | (6.2) |
+----------------------------------------------+---------+----------+
| Interest paid | (8.5) | (7.0) |
+----------------------------------------------+---------+----------+
| | | |
+----------------------------------------------+---------+----------+
| Net cash from operating activities | 74.6 | 35.3 |
+----------------------------------------------+---------+----------+
| | | |
+----------------------------------------------+---------+----------+
| Cash and cash equivalents comprise: | | |
+----------------------------------------------+---------+----------+
| Cash | 11.9 | 8.7 |
+----------------------------------------------+---------+----------+
| Bank overdrafts | (1.2) | (3.8) |
+----------------------------------------------+---------+----------+
| Total | 10.7 | 4.9 |
+----------------------------------------------+---------+----------+
Cash and cash equivalents (which are presented as a single class of assets on
the face of the Balance Sheet) comprise cash at bank and other short-term highly
liquid investments with a maturity of three months or less. The Directors
consider that the carrying amount of cash and cash equivalents approximates
their fair value.
b) Free cash flow
Free cash flow, a non-statutory item, highlights the total net cash generated by
the Group prior to corporate activity such as acquisitions, disposals, financing
and transactions with shareholders. It is derived as follows:
+---------------------------------------------+---------+----------+
| | Year | Year |
| | ended | ended |
+---------------------------------------------+---------+----------+
| | 2008 | 2007 |
+---------------------------------------------+---------+----------+
| | GBPm | GBPm |
+---------------------------------------------+---------+----------+
| Net cash from operating activities | 74.6 | 35.3 |
+---------------------------------------------+---------+----------+
| Interest received | 1.7 | 0.8 |
+---------------------------------------------+---------+----------+
| Proceeds on disposal of property, plant and | 0.6 | 1.9 |
| equipment | | |
+---------------------------------------------+---------+----------+
| Purchases of property, plant and equipment | (23.8) | (19.0) |
| - cash | | |
+---------------------------------------------+---------+----------+
| Purchase of intangible assets | (0.7) | (0.5) |
+---------------------------------------------+---------+----------+
| Free cash flow | 52.4 | 18.5 |
+---------------------------------------------+---------+----------+
c) Analysis of net debt
+----------------------------------------------+--------+---------+----------+----------+
| | At | Cash | Exchange | At |
| | 1 Jan | flow | Movement | 31 |
| | 2008 | | | Dec 2008 |
+----------------------------------------------+--------+---------+----------+----------+
| | GBPm | GBPm | GBPm | GBPm |
+----------------------------------------------+--------+---------+----------+----------+
| Cash | 8.7 | 1.0 | 2.2 | 11.9 |
+----------------------------------------------+--------+---------+----------+----------+
| Overdrafts | (3.8) | 3.1 | (0.5) | (1.2) |
+----------------------------------------------+--------+---------+----------+----------+
| Cash and cash equivalents | 4.9 | 4.1 | 1.7 | 10.7 |
+----------------------------------------------+--------+---------+----------+----------+
| Debt due within one year | (37.7) | 42.7 | (5.0) | - |
+----------------------------------------------+--------+---------+----------+----------+
| Debt due after one year | (58.3) | (60.2) | (31.1) | (149.6) |
+----------------------------------------------+--------+---------+----------+----------+
| Finance leases | (1.5) | 0.2 | (0.4) | (1.7) |
+----------------------------------------------+--------+---------+----------+----------+
| Forward exchange contract losses | (2.2) | 13.0 | (44.7) | (33.9) |
+----------------------------------------------+--------+---------+----------+----------+
| Total | (94.8) | (0.2) | (79.5) | (174.5) |
+----------------------------------------------+--------+---------+----------+----------+
The forward exchange contract losses shown above are reported as GBP33.9m (2007
- GBP2.7m) in current liabilities within trade and other payables and GBPnil
(2007 - GBP0.5m) in current assets within trade and other receivables.
On 8 October 2008, the Group issued $120m (GBP83.3m at year end exchange rates)
of new loan notes through a private placement offer. The issuance consisted of
three tranches of loan notes: $25m maturing in October 2015; $75m maturing in
October 2018; and $20m maturing in October 2020. The new loan notes carry a
weighted average fixed coupon rate of 6.77% per annum. The new funds were used
to repay $75m of loan notes, which matured on 22 October 2008 and also to reduce
the level of borrowings under the Group's GBP80m revolving credit facility.
12. Retirement benefit schemes
Defined Benefit Schemes
Aggregate post-retirement benefit liabilities are GBP51.2m (2007 - GBP36.3m).
The primary components of this liability are the Group's UK pension plan and US
pension plans, with deficits of GBP37.3m (2007 - GBP30.5m) and GBP9.3m (2007 -
GBP2.0m) respectively. These values have been assessed by an independent
actuary using current market values and discount rates. The increase in the
liability from GBP36.3m at 31 December 2007 to GBP51.2m at 31 December 2008 is
primarily due to lower returns on plan assets than assumed, offset partially by
increasing the UK plan discount rate assumption to 6.4% (2007 - 5.9%), in line
with increases in market yields of high quality corporate bonds.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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